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A letter of intent to purchase is a written document detailing a buyer’s intent to purchase a seller’s product, assets, or services. It’s used to establish and indicate an understanding between two or more parties which provides the basis for a future or proposed agreement.
Negotiations don't need to be completed for you to draft a letter of intent to purchase. It’s an agreement to agree between a prospective buyer and a seller. A letter of intent to purchase precedes the more formal and detailed purchase agreement.
A letter of intent to purchase is also known as an LOI. Some terms used to refer to a letter of intent include:
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A letter of intent to purchase allows the parties to focus on the essential terms of the agreement without prematurely negotiating the specific legal terms. Some of the advantages of using a letter of intent to purchase include:
Because letters of intent to purchase are not contracts, always sign a legally enforceable agreement before completing work or providing services under the terms outlined in your letter of intent. However, if appropriately drafted, a letter of intent to purchase can ensure certain parts of the agreement are binding – while others are not.
The binding parts of a letter of intent include:
It’s helpful to include a clear statement that parties do not intend to be bound until a definitive agreement is executed and delivered to minimize the risk of an enforced non-binding agreement.
While a letter of intent to purchase is not legally binding, it helps lay the groundwork for the official legally binding purchase agreement.
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The letter of intent to purchase should include:
A letter of intent to purchase covers a range of issues in the buy-sell agreement. It should include details about the agreement and a projected date for completing and signing the purchase agreement.
A letter of intent can cover the main obligations of both the buyer and seller and specify who is responsible for producing the first draft of the agreement. Letters of intent can also mention any pre-conditions to signing the contract. This area is broad and may include producing critical documents or exercising due diligence.
Writing a letter of intent to purchase and even a term sheet will require legal expertise. To avoid any costly mistakes, consult with a lawyer to have them review your letter of intent or draft one for your transaction.
If you wish to create your own letter of intent to purchase, here’s how:
Conditional language is often added, such as “This Letter of Intent shall be non-binding until a more formal purchase agreement is signed.” However, just because this language is used, it doesn’t mean any party can just walk away from the sale. Instead, a contract is still formed.
It’s important to know that numerous contingencies can be placed in a letter of intent that will protect a buyer. Some examples include a review of the seller’s books and records, lining up suitable financing, reviewing and acceptance by the buyer of all lease and purchase agreements, and the ability to obtain adequate and affordable insurance.
Although these are typically non-binding, there have been court cases where intent to purchase agreements have been deemed enforceable.
If you are the seller, you may be precluded from deciding at the last minute not to sign the purchase agreement if the buyer meets all the obligations outlined in the letter of intent.
Never sign a letter of intent until you are sure you are ready to proceed with the transaction.
Due to the risks associated with a letter of intent, some businesses opt to use a term sheet. It is similar to a letter of intent and cost-effective.
A letter of intent to purchase can be used when purchasing a product, services, business, assets, real estate, etc. For example, a vendor may write a letter of intent to be a supplier.
You should use a letter of intent when you want to propel a transaction forward. A letter of intent enables the parties to understand what they are getting into before entering a binding buy-sell agreement.
It helps all parties assess risks and rewards before spending too much time and money on an agreement that may not be beneficial. In addition, it shows the seller that a buyer is serious and vice versa.
Parties should generally use a letter of intent when completing a purchase. Still, there is no set rule or criteria to follow to determine if you should for your particular transaction. Instead, consider the advantages of using an intent to purchase and the potential disadvantages.
A letter of intent lawyer or another professional advisor can offer guidance in making this decision.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
Kerbis' practice includes business and real estate transactions, estate planning, and limited scope litigation consulting. Mathew has negotiated deals involving multinational corporate franchises and has collectively helped hundreds of clients with their transactional, civil litigation, and appellate legal needs. Throughout his tenure as an American Bar Association leader, Mathew has advocated for legal education reform, interviewed ABA Presidents and State Appellate and Supreme Court Justices, and lobbied Congress on behalf of the legal profession. As a law student, Mathew served as an extern for the Honorable Justice Robert E. Gordon of the Illinois Appellate Court, First District.
Attorney Garrett Mayleben's practice is focused on representing small businesses and the working people that make them profitable. He represents companies in structuring and negotiating merger, acquisition, and real estate transactions; guides emerging companies through the startup phase; and consults with business owners on corporate governance matters. Garrett also practices in employment law, copyright and trademark law, and civil litigation. Though industry agnostic, Garrett has particular experience representing medical, dental, veterinary, and chiropractic practices in various business transactions, transitions, and the structuring of related management service organizations (MSOs).
Small Business Attorney licensed in Texas and Colorado. Based in Dallas, appointments available in DFW area.
General practice attorney with experience in civil litigation, family law, criminal law, estate planning, business formation, real estate and business transactions.
I worked at immigration law firms before and recently started my own law firm. My experience includes investor visas, family immigration (spouse, parents, children), change of status, and citizenship applications.
To begin his legal career, Ben was a legal fellow with Georgia Lawyers for the Arts. Ben also assisted Michigan State University in protecting its registered intellectual property as lead intellectual property (IP) intern for Michigan State University's Center for Anti-Counterfeiting and Product Protection (A-CAPP Center). During this time, Ben organized and moderated a panel discussion with U.S. Customs and Border Patrol agents for A-CAPP's annual Brand Protection Strategy Summit. Ben was selected to join a team of law student interns in Lovran, Primorje-Gorski Kotar, Croatia, to handle matters involving cybercrime, international copyright, the Uniform Domain-Name Dispute-Resolution Policy and the General Data Protection Regulation. Before studying law, Ben worked for Core Security and Meridian Link as a software QA engineer. As a member of Million Dollar Minds Entertainment (Est. 2006) Ben produced countless commercial music recordings, engineered hundreds of songs, and served as executive producer seven studio albums. Ben enjoys spending time with his wife and two daughters. He is an alumnus of The South Carolina State University and Michigan State University College of Law.
Attorney Skelly is a midwestern transplant from Iowa. She has been in Florida for the past 11 years. She went to undergrad at Buena Vista University, which is a small liberal arts college in Storm Lake, Iowa. After graduating with her Bachelor's degree in criminal justice, she went on to obtain her Master's degree in criminal justice from Kaplan university, which is now Purdue Global. While attending school full time for her Master’s degree, Attorney Skelly worked full time in social services helping children and their families who were involved in the dependency system. Attorney Skelly has a professional background in child welfare and social services having worked for 18 years in the field. Attorney Skelly always had a lifelong dream of becoming a lawyer and decided to fulfill her goal in May of 2019 by starting law school at Western Michigan University Thomas M. Cooley Law School at their Riverview campus. She did their accelerated program and completed law school in just over two years and graduated magna cum laude with honors. Attorney Skelly also received certificate of merit awards, which means attaining the highest grade in the class in secured transactions, research and writing, and family violence practice. While in law school Attorney Skelly was a teaching assistant to two tenured professors as well as a note taker for those students who had accommodations. She was also awarded the Alumni Association’s Distinguished Student Award. In her legal career, Attorney Skelly started out at the State Attorney’s Office in Fort Myers, FL. She helped prosecute several cases and personally worked as second chair on 9 jury trials and one bench trial. Once Attorney Skelly passed the bar, she worked for a family law firm under a board certified marital and family law practitioner where she gained tremendous knowledge in the area of family law which includes divorce, paternity, child custody/parenting plans, alimony and child support as well as domestic relations issues such as domestic violence injunctions. Attorney Skelly is also certified as a Guardian ad Litem and can serve as a Guardian ad Litem in family court cases. Attorney Skelly is a proud member of the Florida Bar, the Lee County Bar Association, and the American Bar Association.
