What Is A Letter Of Intent (LOI) In Commercial Real Estate Transactions?

Letter Of Intent: How To Initiate The Process Of a Commercial Real Estate Transaction

Most people understand the basic process of buying a home, which typically involves becoming pre-approved by a lender, making an offer on the home you want to purchase, inspection and negotiation, entering into a legally binding agreement, and finalizing the sale. However, the process of purchasing commercial real estate is more complicated and involves a different series of steps. It’s always important to have a Chandler commercial real estate attorney on your team who can guide you through all of the documentation and legal process to promote a smooth outcome.

One of the most important parts of commercial real estate transfers is a letter of intent, abbreviated LOI. This letter initiates the process of a commercial real estate transaction.

ommercial Real Estate Transaction in Arizona

What Is a Commercial Real Estate Letter Of Intent (LOI)?

The first document that is exchanged between a potential buyer and seller for a commercial real estate property purchase, an LOI details the buyer’s intentions to purchase the property and puts specific details about the potential transaction into writing. It’s crucial that your LOI is handled by an experienced Gilbert commercial real estate attorney because it can become legally binding if it is not done properly.

Your attorney can assist in drafting a LOI that clearly indicates your interest in purchasing the property and initiating negotiation without committing you or your business to purchase the property if it does not turn out to be the right property for your needs. However, potential buyers also need to complete their due diligence and research before sending a letter of intent to the seller of the property because an LOI indicates a level of commitment to moving forward with a purchase.

What’s Included In a Letter Of Intent in Arizona?

A letter of intent has three main purposes:

To outline the key elements of a proposed transaction
To signify that both parties are committed to moving forward with the transaction
To provide guidance for a formal binding contract if the sale goes through

An LOI will include specific details about the transaction, such as:

Purchase price
Information about the buyer’s financing
Time period for the buyer to finalize their due diligence
Close of escrow or date of possession
Expiration date, although the negotiations may continue beyond that date

Although a potential buyer’s LOI is not legally binding in most cases, it does provide proof that they want to move forward with a deal in good faith. The buyer and seller may agree that certain points of the LOI are legally binding and include these details in their final transaction documents.

The party who submits an LOI is entitled to change details of their LOI or withdraw from the deal if their due diligence uncovers information that was previously undisclosed.

Once your Glendale business attorney has drafted your LOI, you do not need to sign it. Some sellers request that the potential buyer sending the letter sign it, but this can make the document legally binding and is not typically in the best interest of the potential buyer. An alternative solution is to ask the property broker to sign the letter of intent to prove its validity in a way that does not legally bind the potential buyer to purchase the property.

In some cases, one of the parties may begin to act as though the potential buyer’s LOI is legally binding, but it’s important to remember that a letter of intent is not a definite commitment to purchase the property. A skilled lawyer can make clear to all parties involved that the LOI is not legally binding. Instead, the LOI opens the doors for the potential buyer to”

Complete their due diligence
Verify information so that they can determine whether the commercial real estate for sale is a good fit for the needs of their business
Ensure that the information about the property that was presented by the seller is accurate

Common complications with the commercial real estate transaction process, such as claims of equitable estoppel, can be avoided if your Gilbert commercial real estate attorney carefully reviews all documents and provides legal guidance throughout the transaction.

How Do I Draft a Letter Of Intent For a Commercial Real Estate Property?

Potential buyers who want to purchase a commercial real estate property should begin by discussing their needs with their Scottsdale commercial real estate attorney. Their finances and financing should be in order and they should have a clear idea of what they are looking for in a property. Before asking their attorney to draft an LOI on a property, the potential buyer should take time to examine the market, tour multiple properties, and begin the process of due diligence on the property they are interested in purchasing.

Get Representation From An Experienced Commercial Real Estate Attorney In Arizona

Purchasing a commercial real estate property can be complicated, but working with the experienced attorneys at Denton Peterson Dunn can ensure you have the guidance you need every step of the way. Our attorneys have extensive experience guiding clients through the process of purchasing real estate for their business and are ready to help you perform due diligence, draft documents, negotiate with sellers, and avoid expensive mistakes. Let the attorneys at Denton Peterson Dunn provide the representation you need! Contact us today to get started.

Brad Denton, Business Lawyer
Brad Denton – Denton Peterson Dunn