A letter of intent is generally a good idea for large transactions, like your purchase of commercial real estate. Letters of intent enable you to know, before the contract is even worked out, that you and the seller agree on the major terms of the deal. There are obvious benefits to knowing this information before you put the time and expense into preparing the contract itself.
Using Letters of Intent to Stay on the Same Page
When buying or selling commercial real estate, both the buyer and seller are putting a lot on the line. Resources, time, and money are being committed to a process, and a contract for sale only represents the end stage of that process. In the meantime, before a contract is hammered out, wouldn’t it be nice to obtain reassurance that you and the other party are on the same page? The letter of intent is that reassurance. The seller in particular may suggest a letter of intent any time s/he wants to verify your serious commitment to the purchase of the real estate. It’s not that your commitment was ever in any doubt; letters of intent simply help to solidify that commitment and provide the parties with a convenient, written reference point for all the major aspects of the deal.
Letters of Intent: Proceed with Caution?
There are some instances, however, in which the real estate seller’s suggestion may be cause for caution, rather than simply a sign of good times ahead. Letters of intent must generally be nonbinding; otherwise, their utility as a convenient reference point is greatly diminished. A binding letter of intent is, in many ways, redundant with the contract that it is supposed to herald.
To be sure that your letter of intent is nonbinding, all you have to do is verify this before signing it. Include in the letter of intent a clause that specifically states that it is not a binding agreement, nor was it ever intended to be. Only the contract itself is binding, and even that commitment is pending your signature, as well as any other contingencies set forth in the contract.
Getting Help
Letters of intent in commercial real estate contracts are often written by lawyers, either the buyer’s lawyer or seller’s lawyer, or both. If the seller has suggested a letter of intent, chances are that it has been written or reviewed by the seller’s attorney. If you agree to make use of a letter of intent, be sure you avail yourself not just of the added convenience that it provides, but also of its added security, by having your lawyer review it as well.