During the early stages of a commercial real estate transaction for the purchase, lease or sale of property, a buyer, prospective tenant, or representing broker can submit a letter of intent (LOI) as an initial offer and sign of commitment to move forward on a deal before entering into a formal binding purchase agreement.
A LOI is a short but concise non-binding formal letter outlining the conditions of the offer without having to include all of the legal terminology that is required in the real estate purchase or lease agreement. It is important to note, the LOI is just the initial phase of the process to show serious interest in the property. Further due diligence and negotiations will take place after the LOI is delivered and before the parties enter into a formal purchase or lease agreement. Even after the LOI is executed, the terms can be changed at any time, and all parties have the right to completely withdraw from the deal based on new information that comes up during the due diligence and verification process.
Keep in mind the information that is contained in an LOI can vary depending on the nature of property. However, some standard components that should be included are listed below:
- An introductory purpose statement explaining the purpose of the letter.
- The names and contact information for the buyer/tenant and seller/landlord.
- Address and/or legal description of the property.
- Purchase price of the property including financing terms and any contingency clauses.
- Mortgage escrow and title responsibilities.
- Inspection process detailing the inspections that will be conducted and the deadline for completion.
- Payment of real estate taxes.
- Due diligence period including the terms to exit the agreement if the conditions are not satisfied.
- Closing costs and date.
- Additional contingencies.
- Commission statement.
- A complimentary closing statement giving a brief description of the steps that will occur after the LOI is signed and delivered; negotiations, preparation and execution of a purchase or lease agreement, any other terms or conditions that will be worked out prior to execution of a formal agreement, and language stating the LOI is nonbinding.
When you are ready to invest in commercial real estate, contact the experts at Q4 Commercial Real Estate to explore the opportunities that await you and assist you with the entire process. Contact Craig Buyers or Jason Rogers today at 319-294-3339.
To view available commercial real estate properties in the Cedar Rapids/Iowa City Metro area visit our properties page here.
For more helpful information read all of our blog posts here. Start off with this blog post titled: An NNN Lease Versus a Gross Lease: What’s the difference?