Letter of Intent to Purchase Commercial Real Estate

Document Overview

You are tasked with drafting a comprehensive Letter of Intent for the purchase of commercial real estate. This document serves as a preliminary agreement outlining the proposed terms between a buyer and seller before executing a definitive Purchase and Sale Agreement. While most provisions are non-binding, certain critical elements—particularly confidentiality and exclusivity—create enforceable obligations. Your draft must balance the need for specificity with the flexibility inherent in pre-contractual negotiations.

Header Section

Date of Letter: Specify the exact date this Letter of Intent is being prepared and presented. This date is critical as it establishes the timeline for all subsequent deadlines, including exclusivity periods, response deadlines, and due diligence commencement.

Seller Information: Provide the complete legal name of the selling entity or individual, including the proper business designation (LLC, Corporation, Partnership, etc.). Include the seller's complete mailing address with street address, city, state, and ZIP code. If the seller is a business entity, verify the exact legal name as it appears in the entity's formation documents to ensure proper identification in subsequent agreements.

Subject Line: Draft a clear subject line that identifies this as a Letter of Intent and specifies the property address. The subject should immediately orient the reader to the transaction's purpose and the specific real estate at issue. Use the property's common address, and if the property has a well-known name or designation, include that as well.

Introduction

Craft an opening paragraph that establishes the purpose and scope of this Letter of Intent. Identify this document as an LOI and clearly name both the prospective buyer and seller with their proper legal designations. Describe the property with sufficient specificity to avoid ambiguity, including the street address and a brief description of the property type (e.g., office building, retail center, industrial warehouse). State that this LOI sets forth the proposed terms and conditions under which the buyer intends to purchase the property from the seller. The introduction should be professional yet accessible, setting a collaborative tone for the negotiation while maintaining appropriate formality for a significant commercial transaction.

Key Transaction Terms

Buyer Identification

Identify the buyer by complete legal name and business entity type. Include language permitting assignment to an affiliated entity or designee if the buyer intends to maintain flexibility in structuring the ultimate purchasing entity. This provision is particularly important for buyers who may wish to take title through a special purpose entity, trust, or subsidiary formed specifically for this acquisition.

Seller Identification

Provide the seller's complete legal name and entity designation. Confirm that the named seller is the record title holder or has authority to sell the property. If multiple entities or individuals hold title, all must be identified as sellers in this section.

Property Description

Provide a comprehensive description of the real property that is the subject of this transaction. Include the complete street address, city, county, and state. Specify the Assessor's Parcel Number (APN) to ensure precise identification. Describe what is included in the sale: the land, all buildings and improvements, fixtures, and appurtenances. If specific items are to be excluded (such as certain equipment or personal property), note that exclusions will be detailed in the Purchase and Sale Agreement. For properties with multiple parcels or complex configurations, provide sufficient detail to eliminate any ambiguity about what real estate is being acquired.

Purchase Price

State the total purchase price as a specific dollar amount. Indicate whether this price is subject to any adjustments (such as prorations for property taxes, rents, or operating expenses) or if it represents a fixed, non-adjustable amount. If the price is subject to negotiation based on due diligence findings, square footage verification, or other factors, explain the methodology for any potential adjustments. Specify the form of consideration (cash, assumption of debt, seller financing, or a combination) and outline the general structure of how the purchase price will be paid at closing.

Earnest Money Deposit

Specify the amount of the earnest money deposit that will be required upon execution of the definitive Purchase and Sale Agreement. Identify the escrow holder or title company that will hold these funds and the timeframe within which the deposit must be made (typically expressed in business days following PSA execution). Describe the conditions under which the earnest money will be refundable to the buyer (such as during the due diligence period or if contingencies are not satisfied) versus when it becomes non-refundable. Address whether additional deposits will be required at specific milestones and how the earnest money will be credited against the purchase price at closing.

Due Diligence Period

Define the due diligence period duration, typically expressed as a number of days from execution of the Purchase and Sale Agreement. Describe the scope of investigations the buyer intends to conduct, which should include physical and environmental inspections of the property, review of all title documents and surveys, examination of all leases and tenant files, analysis of operating statements and financial records, verification of zoning and permitted uses, and review of all service contracts and agreements affecting the property. Specify that the buyer's obligation to proceed will be contingent upon satisfactory completion of due diligence in the buyer's sole and absolute discretion. Address whether the buyer will have the right to terminate the agreement during this period and receive a full refund of the earnest money deposit.

Financing Contingency

Describe the buyer's financing requirements and contingencies. If the purchase is contingent upon obtaining financing, specify the type of financing sought (conventional mortgage, commercial loan, SBA financing, etc.), the maximum interest rate and terms acceptable to the buyer, and the timeframe within which financing must be secured. State whether the buyer's inability to obtain financing on acceptable terms will permit termination of the agreement with return of the earnest money. If the buyer intends to pay all cash or has already secured financing, state that explicitly and indicate whether the buyer will provide proof of funds or a financing commitment letter. Address whether the buyer will make good faith efforts to obtain financing or whether approval is in the buyer's sole discretion.

Closing Date

Specify the target closing date or establish a timeframe for closing (such as within a certain number of days after satisfaction of all contingencies). Indicate whether this date is firm or subject to extension under specified circumstances, such as delays in obtaining financing, title issues requiring cure, or tenant estoppel certificate delays. Address the consequences if either party is unable to close by the specified date and whether automatic extensions will apply or if mutual written agreement will be required for any postponement.

Closing Costs Allocation

Detail how closing costs will be allocated between buyer and seller. Specify which party will pay for title insurance premiums (owner's policy and lender's policy if applicable), escrow fees, transfer taxes and recording fees, survey costs, environmental reports, property inspections, prorated property taxes and assessments, tenant improvement allowances or credits, brokerage commissions, and attorney's fees. Be specific about items that will be split equally versus those assigned to one party. Address how any unexpected costs or fees will be handled and whether the allocation is subject to local custom or statutory requirements.

Legal Effect and Binding Provisions

Non-Binding Nature

Clearly articulate that this Letter of Intent is not a binding contract for the purchase and sale of the property. Explain that it represents an expression of mutual interest and a framework for negotiating a definitive Purchase and Sale Agreement. Emphasize that neither party will have any obligation to proceed with the transaction unless and until a formal Purchase and Sale Agreement is fully executed by all parties. However, explicitly identify the specific provisions that ARE binding and enforceable, which typically include confidentiality, exclusivity, and the obligation to negotiate in good faith. This distinction is critical to avoid unintended contractual obligations while preserving the enforceability of provisions that protect both parties' interests during the negotiation period.

Confidentiality

Establish binding confidentiality obligations requiring both parties to maintain the confidential nature of this LOI, the proposed transaction, and all information exchanged during negotiations and due diligence. Specify that neither party will disclose the terms, existence, or status of negotiations to third parties without the other party's prior written consent, except as required by law or to the parties' respective attorneys, accountants, lenders, and other professional advisors who have a need to know. Address the duration of the confidentiality obligation and any exceptions for information that is already public or independently developed. Include remedies for breach, noting that damages may be difficult to calculate and that injunctive relief may be appropriate.

Exclusivity Period

Define a binding exclusivity period during which the seller agrees not to solicit, entertain, negotiate, or accept any other offers or proposals for the sale, lease, or other disposition of the property. Specify the exact duration of this exclusivity period, typically ranging from 30 to 90 days from the date of this LOI. State that this exclusivity is granted in consideration of the buyer's commitment of time, resources, and expense in conducting due diligence and negotiating the transaction. Address whether the exclusivity period will automatically terminate if the buyer fails to execute a Purchase and Sale Agreement within a specified timeframe or fails to proceed with due diligence in good faith. Consider including consequences for breach of exclusivity, such as reimbursement of the buyer's due diligence expenses.

Closing and Acceptance

Acceptance Deadline

Specify the deadline by which the seller must accept the terms of this Letter of Intent by signing and returning an executed copy. Express this as a specific date and time, and indicate the method of delivery that will constitute effective acceptance (email, overnight courier, personal delivery, etc.). State that if acceptance is not received by the deadline, this LOI will automatically expire and be of no further force or effect.

Buyer's Signature Block

Provide a formal signature block for the buyer, including the full legal name of the buyer entity, a signature line, and spaces for the printed name and title of the person executing on behalf of the buyer. Include a date line for the execution date. If the buyer is an entity, ensure the signatory has appropriate authority to bind the entity to the binding provisions of this LOI.

Seller's Acceptance Block

Provide a formal acceptance and signature block for the seller, clearly labeled as "AGREED AND ACCEPTED" or similar language indicating the seller's acceptance of the LOI terms. Include the full legal name of the seller entity, a signature line, and spaces for the printed name and title of the person executing on behalf of the seller. Include a date line for the acceptance date. Ensure the format makes clear that the seller's signature constitutes acceptance of the proposed terms and creates binding obligations with respect to confidentiality and exclusivity provisions.

Additional Drafting Considerations

Throughout this Letter of Intent, maintain a professional and collaborative tone that facilitates productive negotiations while protecting your client's interests. Use clear, unambiguous language and avoid overly technical jargon that might obscure the business terms. Ensure all dollar amounts, dates, and timeframes are clearly specified or marked for completion with bracketed placeholders. Consider including additional provisions relevant to the specific transaction, such as assumption of existing leases, seller's representations regarding property condition, allocation of risk for casualty or condemnation prior to closing, or dispute resolution procedures. Remember that while this LOI is largely non-binding, it sets the framework for the entire transaction and establishes expectations that will carry forward into the definitive agreement. Draft with precision and attention to detail, as ambiguities or omissions at this stage can create complications in later negotiations.