Letter of Intent (LOI) Form

In the United States, the Letter of Intent (or LOI) legal form is often used when a significant purchase is planned. The “intent” word here means that a purchaser has serious intentions and guarantees that the deal will be complete at some point.

By this legal document, one party promises to another that it has an intent to do something (usually, to buy something). Besides sales transactions, such letters are also written by people who intend to accept a scholarship or attend a specific educational institution.

Another reason to write such a letter is acquiring a business which is rather similar to a letter of intent when one buys a business (the difference is that an acquisition letter can have a confidential mark).

Typically, these legal forms are used for such purchases as real property (residential or commercial), business, or general estate.

There is a list of things that a writer of each such letter should mention:

• What is being bought
• Who the deal parties are
• How much the object in question is.

Besides, it is vital to write that the letter is not a sales agreement but only an intention. Also, a potential buyer may state whether they want a seller to finish seeking other purchasers or not and how much time is needed to complete the deal.

In this review, we will explain the basics of letters of intent and compare them with other similar legal templates. We will also touch on the legal aspects related to this document.

When You May Need a Letter of Intent

Such a letter is a useful document for both parties: the one that sells and the one that buys. It protects the parties’ rights and ensures that no one will waste time and the deal will be completed in a certain period.

This form allows a seller to stop seeking someone else to buy the product and, at the same time, helps a buyer to book that same product without being afraid of losing it. Of course, the letter imposes specific obligations on a buyer; however, it also defines when and how the buyer will finish paying for the product.

So, when is it desirable to create a letter of intent? The answer is simple: anytime you are trying to buy or sell something considerable (like a piece of real property, an expensive car, or a profitable business, and so on) and want to show the seriousness of your intentions together with the second deal party.

Types of Letter of Intent

Generally, there are over ten different types of letters of intent. They include letters for purchase, marriage, business, employment, investment, education, rendering services or selling goods, and other crucial matters in life and work. Here, we list the most commonly used types which are usually tied to purchases of something:

• Business Purchase LOI

The letter is the first step of agreement between the one who is willing to get rid of the business unit and the one who wants to buy it. At the end of the deal, a proper business purchase contract must be drafted and signed by both parties.

• General Property Purchase LOI

This letter fits in cases when a personal tangible property is the deal object. For instance, a person who is buying a motor vehicle, a boat, or an expensive jewelry piece, may deliver this letter to the one who is selling. The letter will demonstrate that the buyer is ready to get the product on the offered conditions in the agreed term.

• Real Estate Purchase LOI

The same applies to real property deals: parties can discuss the deal, and a buyer may provide a seller with a letter that will show that a buyer is ready to get the property under certain conditions. Later, parties should create and sign the real estate purchase agreement to finalize the transaction.

Why Is It Beneficial to Use a Letter of Intent?

We recommend creating such letters if you are expecting a significant deal in the near future. There are at least three reasons why it is beneficial to create, sign, and exchange such letters.

Firstly, this document lets parties establish solid legal relations and trust each other more than before. The letter serves as a guarantee that the deal will be completed in a way that both parties expect it to be.

Secondly, finalizing the deal in an expected way without any unpleasant surprises may lead to continuous cooperation full of trust, and parties may resort to each other’s services or goods at any time. This is more applicable to business deals or tangible property sales transactions.

Lastly, as we have mentioned above, this letter helps both parties to protect their rights and secures them from wasting time, money, and nerves. With the letter of intent, a buyer promises certain things in a certain timeframe, and a seller knows when to expect the payments and how much they will be. Problems will begin only if one of the parties acts unfairly; in all other cases, the deal will be concluded as planned.

What Are the Components of an LOI?

Because a letter of intent is a legal document, there are several components that you cannot avoid and should include in the template when drafting it.

• Parties’ details

When writing the letter, you shall indicate at least your name and another party’s name. Other contact details are optional.

• Deal object

You have to provide a reason for writing this letter: specify what your intentions are (what you plan to buy).

• Terms and conditions

Here, you shall list all the conditions you can imagine that are relevant to the deal. It is mandatory to add the object’s price and payment timeline here if you are creating a form for the purchase of something.

• The date and signature

Remember to date your form and sign it. Another party should also leave their signature on the document to show their awareness of the letter’s content.

Legal Ramifications of an LOI

Usually, the form is not legally binding. However, if parties already have a contract between each other and written there that the letter of intent is legally binding, the court will take this point into consideration if needed.

After one party has done everything promised to another party in a letter of intent, an agreement between two parties shall be signed. This contract will later be legally binding and might be used in court by both parties if something goes wrong.

LOI vs. Memo of Understanding

Basically, a “Memo of Understanding” is another name for a letter of intent. The documents’ content and purpose are the same: to show both parties’ seriousness before an official agreement is signed.

The only difference is that the LOI form is often used for private transactions and purchase deals, while the memo of understanding (also known as MOU) perfectly fits for business cases.

LOI vs. Term Sheet

The term sheet is a document where both parties list all the terms and conditions possible before they sign an agreement. The term sheet usually is not signed by parties and offers just a list of parties’ negotiations.

The letter of intent is considered more serious because it has parties’ signatures and also expresses one’s intention to do or purchase something.