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ContractsCounsel has assisted 74 clients with letters of intent to purchase and maintains a network of 96 business lawyers available daily. Customers rate lawyers for letter of intent to purchase matters 5.0.
A letter of intent to purchase is a written document detailing a buyer’s intent to purchase a seller’s product, assets, or services. It’s used to establish and indicate an understanding between two or more parties which provides the basis for a future or proposed agreement.
Negotiations don't need to be completed for you to draft a letter of intent to purchase. It’s an agreement to agree between a prospective buyer and a seller. A letter of intent to purchase precedes the more formal and detailed purchase agreement.
A letter of intent to purchase is also known as an LOI. Some terms used to refer to a letter of intent include:
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A letter of intent to purchase allows the parties to focus on the essential terms of the agreement without prematurely negotiating the specific legal terms. Some of the advantages of using a letter of intent to purchase include:
Because letters of intent to purchase are not contracts, always sign a legally enforceable agreement before completing work or providing services under the terms outlined in your letter of intent. However, if appropriately drafted, a letter of intent to purchase can ensure certain parts of the agreement are binding – while others are not.
The binding parts of a letter of intent include:
It’s helpful to include a clear statement that parties do not intend to be bound until a definitive agreement is executed and delivered to minimize the risk of an enforced non-binding agreement.
While a letter of intent to purchase is not legally binding, it helps lay the groundwork for the official legally binding purchase agreement.
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The letter of intent to purchase should include:
A letter of intent to purchase covers a range of issues in the buy-sell agreement. It should include details about the agreement and a projected date for completing and signing the purchase agreement.
A letter of intent can cover the main obligations of both the buyer and seller and specify who is responsible for producing the first draft of the agreement. Letters of intent can also mention any pre-conditions to signing the contract. This area is broad and may include producing critical documents or exercising due diligence.
Writing a letter of intent to purchase and even a term sheet will require legal expertise. To avoid any costly mistakes, consult with a lawyer to have them review your letter of intent or draft one for your transaction.
If you wish to create your own letter of intent to purchase, here’s how:
Conditional language is often added, such as “This Letter of Intent shall be non-binding until a more formal purchase agreement is signed.” However, just because this language is used, it doesn’t mean any party can just walk away from the sale. Instead, a contract is still formed.
It’s important to know that numerous contingencies can be placed in a letter of intent that will protect a buyer. Some examples include a review of the seller’s books and records, lining up suitable financing, reviewing and acceptance by the buyer of all lease and purchase agreements, and the ability to obtain adequate and affordable insurance.
Although these are typically non-binding, there have been court cases where intent to purchase agreements have been deemed enforceable.
If you are the seller, you may be precluded from deciding at the last minute not to sign the purchase agreement if the buyer meets all the obligations outlined in the letter of intent.
Never sign a letter of intent until you are sure you are ready to proceed with the transaction.
Due to the risks associated with a letter of intent, some businesses opt to use a term sheet. It is similar to a letter of intent and cost-effective.
A letter of intent to purchase can be used when purchasing a product, services, business, assets, real estate, etc. For example, a vendor may write a letter of intent to be a supplier.
You should use a letter of intent when you want to propel a transaction forward. A letter of intent enables the parties to understand what they are getting into before entering a binding buy-sell agreement.
It helps all parties assess risks and rewards before spending too much time and money on an agreement that may not be beneficial. In addition, it shows the seller that a buyer is serious and vice versa.
Parties should generally use a letter of intent when completing a purchase. Still, there is no set rule or criteria to follow to determine if you should for your particular transaction. Instead, consider the advantages of using an intent to purchase and the potential disadvantages.
A letter of intent lawyer or another professional advisor can offer guidance in making this decision.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
