A letter of intent (LOI) is used when the purchase/lease of a business or commercial property is at a point of serious consideration. The LOI outlines a variety of details:
- Signifies an intention to buy, without legal obligation to potential purchaser
- Enables potential purchasers to obtain information about the business or commercial property in a formal format
- Communicates a degree of seriousness
- Provides insight into the flexibility of the seller with specific sale terms and conditions
Included provisions:
- Proposed purchase price; which should include the down payment and any detailed financing arrangements that are part of the sale.
- A description of the property and a listing of the assets that are being sold and all exceptions that are negotiated; including any receivables and how they are to be handled.
- A confidentiality agreement that prohibits each party from disclosing the potential sale or any information that is revealed during negotiations.
- The LOI should prohibit negotiations with another party concerning any potential sale for a set period of time.
- An agreement that prohibits the seller from entering into any business that would directly compete with the business that is for sale.
- Any contingencies that would prevent the deal from going forward, such as a finance contingency or any subsequent disclosures that would affect the value of the subject property or business
The LOI serves to secure the confidentiality of the potential transaction and provides time for the potential purchaser to work towards the purchase; similar to placing a product in a shopping kart.
