Depending on the type of commercial land for sale, a letter of intent (LOI) may have other names, including memorandum of understanding, term sheet, binder, agreement in principle or commitment letter. Despite the name, its functionality is the same: to outline the primary terms of the transaction. Although some LOIs may be binding, many are not and are used as a negotiation tool to define further terms of the purchase offer commercial land for sale.
An LOI can have key advantages. You and the seller can focus on the critical terms (such as loan/price amounts and closing/occupancy dates) without delving into legal terms. In addition, by identifying key terms, especially price, the seller may feel morally obligated to remain committed to that price even if the LOI is non-binding. Thus, it minimizes the motivation for a seller to renegotiate for a higher price.
Furthermore, the LOI may be helpful when resolving third-party issues that may arise throughout a transaction for commercial land for sale, and it can act as a blueprint in the preparation of the formal offer to purchase drawn up by the parties’ attorneys. Oftentimes, the LOI acts as the written authorization for you to initiate due diligence on the commercial land for sale.
One final advantage of utilizing a letter of intent is that the document can specify the commission paid to the broker prior to a formal offer to purchase.
While LOIs can be quite beneficial, it is wise to be aware of some disadvantages associated with them. For example, some potential buyers will use an LOI to shop a deal or try to negotiate better terms. Another potential disadvantage is that an LOI may have some unintended consequences if either or both sides fail to understand its impact. While most LOIs are labeled non-binding, that rarely releases the participants from all obligations. If legal issues arise, some letters of intent can be found to be a valid contract, in which case both buyer and seller will need to negotiate in good faith.
As long as you understand the issues, you will be better prepared in negotiating the terms of the LOI. Breaching an LOI that is found to be binding can result in remedies and awards such as lost profits, specific performance, negligent misrepresentation, consequential damages, and even fraud. LOIs should be treated as legal documents.
When it comes to acquiring commercial land for sale, a letter of intent can be a powerful tool in the negotiating process. To maximize the opportunities and minimize the risks of using an LOI, you need an experienced, knowledgeable commercial real estate broker by your side. At Menlo CRE, we are ready to use our expertise to help you obtain the best terms possible.
Contact us today at 480.659.1777 or email us at firstname.lastname@example.org