A letter of intent (LOI) is a formal document that — while not legally binding — serves as a starting point for negotiations between a buyer and seller or a commercial landlord and tenant.
In essence, a letter of intent is a written expression of the desire to enter into a formal contract, and it helps ensure that both parties are broadly on the same page from the start.
What’s the point of using an LOI before an actual contract is offered?
Essentially, a well-crafted letter of intent can save a lot of time and resources. The due diligence involved in a major real estate transaction can be both time-consuming and expensive. If the parties aren’t actually aligned in their expectations at the beginning, that can be a lot of wasted effort and money. An LOI can also:
- Reduce legal fees and financial risks: If the LOI reveals a disconnect between the goals of both parties, they can walk away before they end up in any kind of legal battle or suffer serious financial losses. Would-be buyers or tenants can swiftly move on to the next opportunity, while sellers or landlords don’t have to be concerned about taking their property off the market for any extended time.
- Easily identify any areas of concern: All real estate deals are subject to some negotiation, and a good LOI can help identify any areas of disagreement early on. That allows the parties involved to focus their efforts where it matters the most.
- Build trust and confidence: A letter of intent demonstrates a certain amount of professionalism and a commitment to transparency, which can build goodwill between the parties. Negotiations are likely to go more smoothly and stay on track when there are clear, written proposals to work from.
Whether you’re buying, selling or leasing, navigating a real estate deal can come with a lot of anxiety and its fair share of headaches. You can minimize the potential for any serious problems by having the appropriate legal guidance on your side as you draft your next letter of intent.