The first step in many commercial transactions is to memorialize the business terms of the transaction in the form of a letter of intent (LOI) or a term sheet. Proper care needs to be taken to avoid the LOI from having a legally binding effect. Having a business lawyer review the LOI or term sheet prior to delivery will make sure that it does not become a legally binding contract, as well as, can address confidentially requirements.
Exclusivity may be a term that you are looking for in a LOI. For instance, you may want the business owner to remove the target business from the market while undergoing initial due diligence and/or working towards a final purchase agreement. You can put specific language in a letter of intent that will allow for such exclusivity. Sometimes, if due diligence is going to cost a lot or money and effort on the part of the potential buyer; the buyer may want a legally binding obligation on the part of the parties to negotiate in good faith.
In most cases the LOI will not be a binding agreement and although some terms will be addressed other terms will be left open for future negotiations. Below is sample letter of intent “LOI” for the purchase of a commercial property.
NON-BINDING PROPOSED TERM SHEET FOR
COMMERCIAL OR INDUSTRIAL PROPERTY;
THIS TERM SHEET IS NOT AN OFFER OR A CONTRACT AND IS SOLELY INTENDED TO SET FORTH POSSIBLE TERMS FOR THE PROPOSED TRANSACTION. IT IS NOT BINDING ON EITHER PARTY AND CREATES NO LEGAL RIGHTS, DUTIES OR OBLIGATIONS, EXPRESS OR IMPLIED. NEITHER THE SELLER/LANDLORD NOR ANY OTHER PARTY SHOULD RELY UPON THE INFORMATION CONTAINED IN THIS TERM SHEET.
REAL ESTATE LICENSEES ARE NOT PERMITTED BY LAW TO PREPARE AGREEMENTS FOR THE TYPE OF PROPERTY AS SET FORTH ABOVE, EXCEPT FOR LEASES OF CO-OPS. IF THE PARTIES DESIRE TO HAVE A CONTRACT OF SALE, LEASE OR OTHER LEGALLY BINDING DOCUMENT PREPARED, IT IS RECOMMENDED THAT THEY CONSULT AN ATTORNEY.
The Buyer, _______________________, presents the following offer to purchase the premises known as: _________________________________________________________________, upon the formal execution of a contract of sale by all parties, containing mutually agreeable terms and conditions, including but not limited to the following:
- Purchase Price: $ _____________________
- Subject to purchaser obtaining a _______________ loan in the sum of $_________________.00;
- Subject to a sixty (60) due diligence period for requisite inspections, applications for financing, among other things.
- Subject to Seller providing reasonable pertinent information regarding their ownership status, condition of the property, liens, environmental issues, ISRA, survey, and back title information, as well as usual and customary representations.
- Buyer reserves the right to add __________, LLC as additional Buyers at any time prior to closing of title.
AGREED AND ACCEPTED