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Commercial Real Estate — Letters of Intent

Dealing with the many different aspects of a commercial real estate contract can be an incredibly stressful and time consuming process. In many cases it requires several rounds of negations. If sticking points cannot be sorted out, then that time and energy might even be wasted. That is why Letters of Intent (LOI) are often desired by both buyers and sellers. These letters essentially formalize negotiations and streamline discussion so that it is more likely that a favorable understanding will be reached in as efficient a manner as possible.

What Exactly is a Letter of Intent?
contract.jpgIt is critical to have legal help when working on these letters. A legal professional will explain how he LOI should include the following:

***Set the Table: The letters should indicate what terms or issues are agreed upon (settled) and what still needs to be worked out.

***Promise of Good Faith: Next, the the LOI should explain that both parties agree to operate in good faith–and confirm that they are bound to do so. This gives the agreement at least some force. It does not mean that either party is automatically “locked in.” Instead, it is just a confirmation that the terms of the transaction left to be negotiated will be analyzed reasonably, without ulterior intentions to scuttle the deal. Determining when good faith is or is not present is a difficult process, but an attorney can explain how it might apply on a case by case basis. This is one of the more important parts of the LOI. In fact, there is generally an implied covenant to negotiate in good-faith, but the clause is usually included as confirmation.

***When to End: Finally the LOI should indicate a specific time when the negotiations may be canceled.

Other Considerations

Letters of Intent are somewhat difficult for many to get their head around, because they seem to be an agreement to keep negotiating. But even though they may not settle anything for good, they are critical pieces to the puzzle of commercial real estate negotiations.

Many of the specifics that will go into these letters above and beyond the outline issued discussed above, hinge of many different case-specific details. For example, you must consider whether the space is a “hot commodity” or if many other offers are likely to be on the table. Similarly, do you have a history of working with the party? How much faith can you place in their commitments? Do you have other arrangements with the party such that this negotiation is just one aspect of your relationship?

As will all legal issues, in our area it is essential to have the aid of an experienced Sacramento commercial real estate legal professional to advocate for your interests. Please feel free to contact our office to see how we can help.