LETTER OF INTENT VS. PURCHASE OR LEASE AGREEMENT
Letter of Intent
A letter of intent (LOI) can be prepared by either party, summarizes mutually agreed upon deal points and it expresses a party’s willingness to enter into a contract, but usually with no legal obligation for either party to perform. Letters of intent are often more efficient than full contract offers at the beginning of the negotiating process because they focus on the main business point and not legal fine print. The goal of the LOI is to achieve a preliminary “meeting of the minds”. LOIs are also useful when the full contract (i.e. Purchase Agreement or Lease Agreement) will be very complicated and will involve many details of secondary importance to the main issues such as price and terms. A carefully worded disclaimer should be included to the effect that no contract, liability, or obligation is intended until a formal contract is signed.
Purchase Contract or Lease
A purchase contract is usually prepared by the buyer and a lease is usually prepared by the landlord. The purchase contract or lease provides detailed business terms and conditions and legal delineation of the agreement between the parties and their respective rights, obligations and liabilities. It represents the final “meeting of the minds” between the parties. If one party submits a purchase offer or lease to the other party, it is usually not legally binding unless or until it is signed by all parties involved. However, to be safe, a clause should be included in the document stating that it is legally non-binding. If the party receiving the offer changes any of the price, term or conditions of the offer, it constitutes a counter-offer and will typically not be binding until the party who submitted the offer accepts any such changes.
This provides an overview description of these types of documents but is not intended to be legal advice. Please consult with your attorney and broker when preparing these documents.