Real Estate Letter of Intent Template

The process of buying or leasing commercial or residential real estate is long and complex. A real estate letter of intent protects both parties while negotiating and formalizing a purchase or lease.

What Is a Real Estate Letter of Intent?

A real estate letter of intent usually contains an offer to buy or lease and seeks verification of the landowner’s interest at that price. A real estate letter of intent is often referred to as an “agreement to agree.” However, this description is slightly misleading because it can include enforceable terms, such as a non-disclosure agreement.

When and Why to Use One

Letters of intent protect both parties while exploring a real estate transaction. The letter of intent commits the parties to work in good faith to complete the sale or lease. This does not mean the parties must complete a transaction. However, it sets out the steps that each expects to occur and the contingencies that must be satisfied to complete it.

Key Terms to Include

A real estate letter of intent usually serves three purposes. First, it sets out the offer. A landowner who accepts the letter of intent does not necessarily accept the offer. However, this offer sets the stage for future negotiations.

Second, the letter memorializes any terms the parties have agreed upon. For example, the letter may contain an exclusive negotiation clause. If a seller uses a buyer’s offer to solicit other offers, they may have breached that clause.

Third, the letter describes any contingencies for the offer. Common contingencies in a purchase transaction require the buyer to secure financing and the seller to pass a property inspection.

How to Write One

As when you write any letter of intent, you will identify both parties, the property and the proposed transaction. You will often describe any terms to be negotiated. For example, in a commercial lease letter of intent, these terms may include the lease term and renewal options. The letter of intent will lay out the process for proceeding, including any due diligence to be performed.

Binding vs. Non-Binding Terms

A letter of intent does not obligate the parties to complete the property transaction. Thus, most real estate LOIs are written as non-binding letters of intent that explicitly say so. However, other terms, such as confidentiality and exclusive negotiating clauses, may be binding.

How It Differs From a Purchase Agreement

A lease or purchase agreement is the binding contract that consummates a property transaction. A real estate letter of intent simply confirms interest and starts the negotiations and due diligence. If the property has existing tenants, that due diligence often includes reviewing estoppel certificates from tenants to verify each lease.

Mistakes That Cost You the Deal

The biggest mistake that could cost you a deal and open you to a lawsuit is to violate any binding terms in a real estate letter of intent, such as the exclusive negotiation clause. Another common mistake is to act in bad faith by using the letter of intent to leverage other offers.

Find the Right Real Estate Letter of Intent for Your Transaction

The correct letter of intent will ensure you protect yourself during a real estate transaction. Use ConsumerShield’s guides and templates to find the right letter for your situation.