In commercial real estate transactions, the Letter of Intent (LOI) is a vital document that helps set the stage for a successful sale or purchase. At Jostock & Jostock, P.A., we understand that handling the LOI properly can save time, reduce costs, and minimize misunderstandings.
What Is a Letter of Intent?
A Letter of Intent is a preliminary document used by buyers and sellers to outline the basic terms and conditions they have agreed upon for a commercial property transaction. It acts as a written summary of the key deal points before a formal purchase agreement is drafted.
Commonly, an LOI will include details such as:
The agreed-upon purchase price
Proposed closing date
Deadlines for due diligence
Contingency conditions
Other significant terms
The purpose of the LOI is to ensure both parties share a mutual understanding of the deal’s framework before dedicating resources to drafting a binding contract.
Why Is the LOI So Important?
Drafting a full commercial real estate sales contract can be complicated and time-consuming. Negotiations often involve multiple revisions between buyers, sellers, and their attorneys, sometimes lasting weeks or months. Legal fees can accumulate quickly during this process.
An LOI offers several advantages:
Early agreement on major terms: It confirms the core business points to avoid wasted time later.
Cost efficiency: Helps reduce unnecessary legal expenses by clarifying the deal upfront.
Timely negotiation: LOIs often establish deadlines for due diligence and contract finalization, keeping the process on track.
Essentially, an LOI streamlines the transaction and lowers the risk of disputes or delays.
Is an LOI Legally Binding?
Most LOIs explicitly state they are non-binding to indicate they do not constitute a formal contract. However, courts in Illinois will examine the wording of the LOI and the parties’ intentions to decide if it creates enforceable obligations.
For instance, in Brunette v. Vulcan Materials Co., the court ruled that if both parties agree a formal contract must be executed before any obligations arise, then no contract exists just by signing the LOI—even if terms have been agreed.
Similarly, Leekha v. Wentcher confirmed that no binding contract results if the parties intend to be legally bound only after signing the formal agreement.
Given these rulings, it is critical for parties to clearly state whether the LOI is intended to be binding or non-binding. Any vagueness could lead to unintended legal consequences.
How to Draft an Effective LOI
To ensure your LOI accomplishes its purpose without creating confusion or liability, consider these best practices:
Clearly specify essential terms. Detail the price, closing date, contingencies, and any other critical points.
Explicitly state non-binding intent, if applicable, to avoid ambiguity.
Include deadlines for due diligence and contract negotiation.
Use straightforward language to prevent misinterpretation.
By drafting a precise and clear LOI, parties can advance negotiations with confidence and avoid costly misunderstandings.
Why You Should Consult an Attorney
Although you may be tempted to prepare an LOI yourself, it’s wise to seek legal guidance. An experienced attorney can help you avoid pitfalls, ensure the LOI reflects your intentions, and protect you from disputes or unintended obligations.
At Jostock & Jostock, P.A., we specialize in commercial real estate law and offer tailored support throughout your transaction—from drafting LOIs to closing agreements.
Contact Jostock & Jostock, P.A. for Professional Legal Assistance
If you’re involved in a commercial real estate deal and want to ensure your Letter of Intent or contract is properly drafted, contact Jostock & Jostock, P.A. Our expert attorneys will help you navigate the complexities of real estate transactions with confidence and clarity.
A well-crafted LOI is the first step toward a smooth and successful commercial real estate sale. Let us help you get it right.
Get in touch with Jostock & Jostock, P.A. today to discuss your commercial real estate needs and protect your interests every step of the way.
