Intro- What is the document? When is it required?
In case you are contemplating entering into an agreement or contract with another company or business, a letter of intent can come in handy. The document is an excellent means to record your intentions and streamline future negotiations.
It is a letter between two parties that offers the foundation for a proposed or future agreement. It may be also drafted as an agreement where two parties are involved instead of a letter. The outcome of both the documents is the same though.
The letter may be utilized for various contexts for recording discussions and negotiations where the detail or the outline of a future agreement’s terms/conditions have been agreed upon. However, it is not compulsory that such negotiations or discussions should be completed. Rather they can be in an ongoing state.
You should also note that this particular letter or document is not a replacement for a contract. You have to put your signature on a lawfully enforceable agreement even before you begin doing certain things under it.
What is a letter of intent asset purchase?
The letter of intent asset purchase is a document in writing for a potential purchaser to the seller, which expresses the former’s wish to purchase a certain asset (including a property). The letter of intent to purchase can be combined with an earnest payment or a financial payment to exhibit your intention to acquire the property. The letter’s attachments and communication make both parties obligated to the transaction.
After all, it is not always possible to depend on telephonic conversations to intimate the owner about your desire to buy something. Instead, a more effective means to accomplish this objective is through this specific letter. It is a written letter to a seller from a buyer.
The letter is also a documented intent to buy services or products from a vendor. The potential buyer will then use this letter of intent to show their seriousness to purchase the asset and his/her motivation to complete a business transaction in the future.
The letter of an intent asset purchase is a non-binding document that usually outlines the price and general terms by which a purchaser proposes to buy a particular business’s assets. In case the seller or vendor signs the letter of intent as well, it is an indication both parties are willing to move ahead for completing the transaction.
Contents of an ideal letter of intent
Heads of terms or a letter of intent will usually cover the issues mentioned below:
1. Target date for putting the signature
2. The detailed information on the proposed agreement
3. Identifying the party who will produce the agreement’s first draft
4. Major obligations of both the parties according to the proposed agreement
It is imperative to note that the party that comes up with the agreement’s first draft will have greater control over the letter. However, if the party does not have professional representation, they may opt to revise a letter drafted by the other party.
Heads of terms or a letter of intent should also cover certain pre-conditions for signing the agreement. Such conditions could be producing specific key documents and an external agency’s approval. Examples of these can be safety certification or export control.
Are both these parties are businesses or organizations? Their shareholders’ agreements and articles of association may be checked to know whether the shareholders have approved the transaction or not. On the other hand, if the parties belong to partnerships, the partnership agreement should be checked to know whether the partnership approves such a proceeding or not.
Completion of due diligence by both or one of the parties happens to be one of the most popular pre-conditions. It is an investigation carried out by the other party in order to discover whether there is any kind of major risk involved in the proposed transaction or not. It can be then managed with the agreement.
Why is the letter of intent required?
The letter to buy any kind of asset including real estate or business is called the letter of intent. It covers the in-depth details needed for the seller and the purchaser to make a smart decision to enter into a joint business. It can be also signed to purchase a business. The letter also puts the parties in a state called the “right of first refusal.”
It means the vendor is in agreement to put the potential purchaser in a state to buy the business. The transaction has to be completed even though other buyers are in the picture. Thus, the letter of intent protects a party from splurging a lot of time and money to investigate the business. The letter prevents buyers only to know later that the other party decided to sell the asset to another purchaser all of a sudden.
It is also a win-win situation for the seller as the letter assures them that the buyer is fully serious. The vendor gets the chance to review the buyer’s financial standing and business experience before deciding finally. It offers an opportunity to the purchaser as well to delve deeper into the business of the seller to find out any red flags or issues.
Tips for writing a letter of intent asset purchase
Your letter of intent should be focused on the accuracy of information. Additionally, it should comprise some of the major details such as the following:
· The property’s complete address should be entered
· The full names of the vendor and the purchaser
· The purchase price, which has been agreed upon by both parties
· The date on which the signature was put
· The earnest deposit agreed upon by both parties
· Terms & conditions, which are related to the earnest deposit
· Description of fittings or furniture if any included in the said property
A legal professional’s presence in the situation can be justified through the factor of earnest deposit. Check out these following unfortunate scenarios, which exhibit why it is so important to protect the right to demand a refund:
· The buyer and the vendor are in disagreement on the conditions and terms of when to put their signatures on the SPA
· The purchaser is not able to procure a home loan from a lending institution
· The price and valuation of the property dips lower than the purchase price agreed upon that may result in a conflict
The letter of intent for purchase or selling property can safeguard the interests of all parties in the agreement. The letter ensures vendors have confidence in the willingness of the purchaser to buy. On the other hand, Buyers can show their commitments to buy the asset they want.
Samples of letter of intent asset purchase
Sample-1 Letter of Intent to purchase property
Names of Owner(s)/Representative(s)________________________________________________________________________________________________________________________________________________________________________________
Our Business/Company Name________________________________________________________________________________________________________________________________
Re: Subject Property
To whom this may concern
The aim of this letter is to express our intent to purchase
Subject: Property/Whole Tower owned exclusively by our business
General Description: Buy a whole tower for 4-star hotel amenities and services etc.
With the Leasing Management or/and Property Management of our choice
We have outlined the below terms & conditions of the purchase
Property Description: Subject property is situated at Makati City, Cebu City, or at the ___________________________________________.
Sample-2 Letter of Intent for offer to purchase real property
<City, State, Zip Code>
Re: Letter of Intent to purchase approximately _____ acres located in <Address1>, located in <Address 2> as is described in Exhibit A (the “Property”)
The offeror has submitted the following offer for purchasing _____ acres of the above-mentioned property. Offeror acknowledges that if accepted by <Name of the Trustee> Board of Trustees, such transaction would be subject to the following material terms. These terms will be finalized by the parties in a Sales & Purchase Agreement (“Contract”) to be approved by the Offeror and the <Name of the Trustee> Board of Trustees.
1. Legal name of the offeror, contract representative, telephone number, address, and email
2. Purchase price: The Purchase Price” would be __________ per acre payable to Seller at closing, for a total estimated cash purchase price of ________. Property taxes will be prorated at the date of closing.
< Name and address of Seller>
Re: Letter of Intent to Purchase
<Address of the property>
I am happy to present this Letter of Intent to purchase the real estate property and any improvement thereon. It is located at <Address> containing approximately ______ acres of land (the “Property”) by _______, or his/her corporate assignee (“The Purchaser”) according to the terms and conditions mentioned below:
I. Purchase price: The purchase price shall be ________ and payable as follows:
1. Deposit of the sum of ___________ dollars upon the execution of the Purchase Agreement between the Purchaser and the Seller, and
2. Payment of the sum of ______dollars in wired funds or bank certified at closing.
II. Conditions The Purchase Agreement to be drafted between the parties shall have the following conditions:
1. Purchaser being satisfied with the results of the survey and a title search of the concerned Property
2. Purchaser being satisfied with the results of his/her studies and inspection of the real property and any improvements thereon. In connection therewith, Purchaser shall be granted _____day feasibility period for said studies and inspections. These will include, but not be limited to financial, environmental, and soil investigations, as well as, a physical inspection of the improvements. Seller shall provide to Purchaser at the commencement of the feasibility period, if applicable, leases, contracts, financial statements, rent rolls, and other details pertaining to the operations and leasing of the Property. If Purchaser is dissatisfied with the results of the studies and inspections, Purchaser may terminate the Purchase Agreement. It can be done prior to or at the expiration of the feasibility period and get a complete refund of the deposit.
3. Purchaser’s obligations under the Purchase Agreement shall be subject to Purchaser having procured during the feasibility period. It will also include a zoning information letter from the County/City of ________________, California. The letter indicates the Property is properly zoned for Purchaser’s intended use as a ______________ and that there are no pending zoning violations concerning the Property.
Mr. <Full Name>
<Company Name/Business Name>
Ms. <Full Name>
<Company Name/Business Name>
Dear Ms. <Last Name>,
We were highly impressed with your company’s product brochure introduction that you had sent us via mail. I had the privilege to speak to the sales representative of your company in the area.
We are deeply interested to purchase your line of electrical appliances. Those appliances appear to have the necessary safety and quality requirements based on the standards maintained by our organization. We also find your stylish designs to be appealing and eye-catching to the customers.
We would love to buy 200 units of each of your electric appliances to start with. These are your rice cooker, air-conditioner, toaster, oven, and microwave. After keeping a close tab on how these products perform in the market, we will get in touch with you for a business contract for a longer period.
We would request you to deliver these products to as early as possible,
Letter of Intent to Purchase
Re; Residential property located at ____________
The following sets out the basic terms upon which we would be prepared to purchase the Property. The terms are not comprehensive and we expect that additional terms (including reasonable representations and warranties) will be incorporated into a formal agreement (the “Agreement”) to be negotiated. Here are the basic terms mentioned:
1. Purchaser: _________________ or its’ nominee.
2. Vendor: Current owner of the property represented by realtor : __________
3. Property: _________________________ clear and free of all liens, encumbrances, and charges at Closing except of the Vendor’s mortgages.
4. Purchase offer $__________________
$ _______________New first mortgage (or possible choice of assumption or/and with increase of existing first to 75 percent)
$ ______________ Second mortgage (carried by vendors for 5 years interest only at 7 percent)
$___________ initial deposit
$___________ additional deposit after condition removal
5. Deposit: Upon execution of the Agreement, the Purchaser will deposit the amount of $_____________. The money will be entirely refundable if the Conditions precedent are not waived in or satisfied in writing by the Purchaser. Else, the deposit will be applied to the Purchase Price at Closing. In case the Purchaser defaults at closing, the Deposit will be retained by the Vendor as its only remedy.