The Significance of a Letter of Intent:

In almost any negotiations for the conveyance of property (e.g., a purchase, sale, or lease), prior to drafting the contract or lease, the parties will come to terms regarding the business points as well as legal issues. More often than not – especially in commercial transactions – the terms will be reduced to writing although there are instances where the parties will agree to the terms orally and not set anything down on paper prior to drafting the agreement (contract or lease). As a course of practice – and (again) especially in a commercial real estate transaction – we would suggest the former over the latter, as it avoids any ambiguity as to what the terms are at a later date. This is generally done through what is known as letter of intent between the parties (the “LOI”). Essentially the LOI sets forth what the business terms are (purchase price or rent), who the transaction will be between, the location of the property or space, whether financing will be a part of the transaction, transferability of the document, as well as other provisions that are important to the parties.

The LOI can be either binding or non-binding. The former construes that there can be legal consequences if the LOI is not adhered to, as it may be construed to be a legal and binding document (agreement) between the parties. While the same can be said about the latter, it is less likely as the parties are agreeing in the LOI itself that the LOI is non-binding.

Some would argue why would anyone want to enter into a non-binding agreement when there may not be any teeth behind it? The reason being is, even if the LOI is non-binding, the parties may try to adhere to it as that is what the spirit of the agreement calls for. Accordingly, if one (1) party see’s that another party is deviating away from the LOI, it can always call the other party out on the same.

While the LOI will not cover all of the terms of the agreement, it will cover many which are deemed important to the parties, and thus should be something that is considered being entered into prior to any transaction, especially when the transaction is commercial. For more information regarding letters of intent and the importance of it in a transaction, please contact us.

Andrew Roth, New Jersey Real Estate Lawyer

*The information in this blog posting is for general information purposes only. Nothing in this blog or associated pages, documents, comments, answers, emails, or other communications should be taken as legal advice for any individual case or situation. The information in this blog is not intended to create, and receipt or viewing of this information does not constitute, an attorney-client relationship.

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