If you ask most people what an “LOI” is they will usually stare at you with a profound look of confusion and utter bewilderment.

For commercial real estate owners, would-be investors and commercial Brokers the “Letter of Intent” is a valuable trade-craft document used to create a meeting of the minds.

You might be surprised to know that the LOI is not exclusive to the commercial real estate industry, it’s used around the world in business for the purpose of creating middle ground or, we might say “general terms of agreement about major deal points.”

Characteristics of the LOI include, among other things, the following:

• Identification of the Parties to a transaction;
• Qualifications of the Parties to perform;
• Legal description of the Property or, Premises;
• Proposed lease price or purchase price;
• Earnest money, when applicable and appropriate;
• Term(s) of the lease or closing date of purchase;
• Responsibilities of the principals;
• Due diligence timetable;
• Occupancy and rent commencement dates;
• Methods of financing, cost allocations, etc.
• Other significant financial or performance terms;
• Miscellaneous contractual terms;
• Disclaimers of binding responsibilities.

The usefulness of the LOI is seen in its establishment and agreement of the major terms and conditions of a lease or a commercial property purchase BEFORE the principal parties execute a legally binding contract for lease or purchase.

Once the LOI has been negotiated and executed by the Brokers or the principals themselves, the agreed-upon terms and conditions are then incorporated into the lease or, if the transaction involves a purchase, a commercial real estate or asset purchase contract.

Click here to request a sample Lease or Purchase LOI from CPNA.

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