Letter of Intent (LOI)
Also called: LOI
A letter of intent is a short, generally non-binding document submitted by a prospective buyer that sets out the proposed price and principal terms of a transaction before a purchase agreement is drafted.
The LOI is where a deal's economics are actually negotiated. Purchase price, earnest money and when it goes hard, the due diligence period, the closing timeline, and any financing or assumption contingencies are all settled here, and the purchase and sale agreement mostly documents what the LOI already agreed.
Although typically non-binding as to the sale itself, specific provisions such as exclusivity, confidentiality, and expense reimbursement are often drafted to be binding. That mixed character is the reason LOIs deserve more care than their length suggests.
Rules of thumb
- Speed matters. In competitive processes the ability to submit a credible, well-supported LOI within a day or two is a real advantage.
- Be explicit about the due diligence period and the earnest money schedule. Those two terms carry most of the buyer's risk.
Related terms
- Offering Memorandum (OM)
An offering memorandum is the marketing document a broker prepares to sell a commercial property, containing property details, financial statements, rent roll summaries, market data, and a proforma projection.
- Due Diligence
Due diligence is the contractual period after a purchase agreement is signed during which a buyer inspects the property, audits its financials and leases, and can typically terminate and recover earnest money.
- Investment Committee Memo (IC Memo)
An investment committee memo is the written recommendation presented to a firm's decision-making body, summarizing a deal's thesis, underwriting, risks, and proposed terms in order to obtain approval to proceed.