Writing the prefect Letter of Intent
Boomers-Bank IRA-401K-Real-Estate Investing
As you try and close a deal, the first step for you would be writing a letter of intent. Most rookie investors tend to overlook the importance of this letter and instead rush into things. This can be a fatal mistake and will definitely lead to problems once formal negotiations are initiated.
A letter of intent, while not a legally binding document, serves to outline a preliminary understanding between the buyer and the seller. Some people might wonder that why a verbal agreement isn’t better instead as it saves time while serving the same mistake. This is a horrible assumption on their part. Yes, the letter isn’t legally binding, but it does nonetheless provide for important business terms which are open to rejection or acceptance later. In short, the letter of intent helps avoid wastage of time and energy associated with people drawn into deals they are not interested in accepting.
So it’s established then that the letter of intent is vital in the closing process. Now the principal question arises of the way a letter of intent should be drafted. Although there is never a universal form, there are however certain pointers you must remember when drafting the letter.
Firstly, the letter of intent must be concise and clear, leaving no ambiguity in any point. Moreover, it should be made absolutely apparent in the body of text that the letter is non-binding, meaning it has no legal value. It is recommended that the words ‘non-binding’ should be included in the title of the letter such that the title reads, ‘non-binding letter of intent’. To further this point, you should use the phrase ‘not legally binding’, in bold or capitalized font, right above where the respective parties are to sign the document.
If, however, you do have a portion of the document which is legally binding, you have to make the necessary provisions to ensure that this is clear to all parties. Ideally, you should place any pointers which are legally binding in a separate part of the document from the non-binding part and properly outline that only this section is legally binding.
A point which you MUST ensure is part of the letter is the ‘no-shop’ provision. What the no-shop provision does is to guarantee that the seller or the landlord will not actively seek buyers or tenants for the property in question while negotiations are underway.
Another important pointer to place in your letter of intent is the stipulation as to who is going to be responsible for drafting the final agreement. It is better to establish this at the get-go to avoid confusion and possible disputes later. Also, you should chart out a timeline and incorporate any deadlines for negotiations and signing of the legally-binding contract. Furthermore, as you will be aiming to facilitate as smooth as possible negotiations, it is advised to provide a complete list of the parties involved as well as their contact information.
Remember however, that although a letter of intent is drafted relatively quickly, by you, your lawyer or your broker, the actual length of the letter will vary from one deal to the next. Similarly, the choice of structuring the letter in a formal or informal tone will ultimately lie with you. However, if your true aim is to close the deal, then I’d personally advise you to be as cordial as possible in the letter of intent. The more you’re able to cajole the seller into trusting you, the easier you’ll make life for yourself.
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Jafer Ali Shariff
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