A real estate letter of intent (LOI) outlines the terms of a proposed real estate contract between a buyer or tenant and a property owner . The letter indicates the buyer/applicant’s intention to buy or lease the property and opens negotiations between the parties. By signing the document, both parties agree to make a reasonable effort to come to a final agreement.
Residential Letter of Intent to Lease – Used by lease applicants to negotiate the rental of residential property.
Residential Letter of Intent to Purchase – Relays the terms of purchase of residential real estate prior to the drafting of a formal contract.
Commercial Letter of Intent to Lease – Delivered to commercial property owners to begin negotiations for the rental of the premises.
Commercial Letter of Intent to Purchase – Outlines a buyer’s proposal to purchase commercial real estate.
Real estate letters of intent can be used to demonstrate the interest of a buyer or future tenant looking at either a commercial or residential property. While each scenario would require terms that are specific to that particular transaction, most real estate LOIs will contain the following info:
An LOI is a formal letter, and should therefore begin with an introductory paragraph that sets out the subject and purpose of the document.
The buyer or lessee will need to identify themselves and provide a contact where they can be easily reached by the property owner or landlord, who should also be identified.
The person preparing the letter should indicate the category of real estate (“residential” or “commercial”) and type of transaction (“purchase” or “lease” of the named property).
The proposed financial terms of the future agreement between the buyer/tenant and landlord need to be provided; that is, the base rent or purchase price.
LOIs for real estate purchases will include the terms of the property transfer and conditions that must be met for the transaction to be completed. An LOI to purchase real estate often gives the buyer a period in which the seller cannot sell to or negotiate with another party.
For lease applicants, the conditions will include limits and penalties on the tenant, such as late fees, pet allowance, and the requirement of permission to sublet. If furniture, appliances, or parking is provided, they can also be specified.
Although most LOI terms aren’t binding , having both parties sign the document affirms their commitment to reaching an agreement. For an LOI to purchase real estate, it is especially important to obtain the seller’s signature because it will hold them accountable to proceed in good faith negotiations , and can prevent them from entertaining other buyers during the letter’s negotiation window.
[SENDER (i.e., BUYER) NAME]
[SENDER STREET ADDRESS]
[SENDER CITY, STATE, ZIP]
[RECIPIENT (i.e., SELLER) NAME]
[RECIPIENT STREET ADDRESS]
[RECIPIENT CITY, STATE, ZIP]
RE: Intent to Purchase Property
This Letter of Intent (the “Letter”) sets forth the proposed terms and conditions of the transaction described hereunder and shall govern the relationship between the Buyer and Seller (the “Parties”) until replaced by a definitive, formal agreement addressing the same transaction and subject matter (the “Definitive Agreement”). The transaction considered in this Letter and in the Definitive Agreement is subject in all respects to the following:
Please note: Any sections that do not apply may be struck through or deleted.
1. THE BUYER. [BUYER NAME] (the “Buyer”) with a mailing address of [BUYER MAILING ADDRESS] .
2. THE SELLER. [SELLER NAME] (the “Seller”) with a mailing address of [SELLER MAILING ADDRESS] .
3. TRANSACTION This Letter is for the purchase of the Property located at [PROPERTY ADDRESS] (the “Property”) for $[AMOUNT] (the “Purchase Price”). The Property is defined as a ☐ commercial ☐ residential space.
4. FINANCING. This Letter i s: ☐ – Conditional Upon Financing ☐ – Not Conditional Upon Financing.
5. CLOSING. The Closing shall occur on [DATE] (the “Closing”). Any change of date for the Closing must be agreed upon in writing by both Parties.
6. CLOSING COSTS. All costs associated with the Closing shall be the responsibility of (check one) ☐ the Buyer ☐ the Seller ☐ the Parties each bearing their own expenses.
7. POSSESSION. Possession of the Property shall be given on [DATE] (the “Possession”). Any change of date for the Possession must be agreed upon in writing by the Buyer and Seller.
8. STANDSTILL AGREEMENT. Following the execution of this Letter, and until Closing, the Seller shall not negotiate for the sale of the Property with any other party unless either the Parties agree in writing to terminate this Letter, or the Parties fail to sign a Purchase Agreement by [DATE] .
9. INTENTION OF THE PARTIES. This Letter sets forth the intentions of the Parties to use reasonable efforts to negotiate, in good faith, a Definitive Agreement with respect to all matters herein. Notwithstanding paragraphs 4 and 8 through 11, which shall be legally binding, any legal obligations with respect to all other matters shall only arise if and when the Parties execute and deliver a Definitive Agreement.
10. GOVERNING LAW. This Letter shall be governed under the laws of the State of [STATE NAME] .
11. SIGNATURES.
Seller/Lessor Signature: ____________________________
Date: [MM/DD/YYYY] Print Name: [SELLER/LESSOR PRINTED NAME]
Buyer/Lessee Signature: ____________________________
Date: [MM/DD/YYYY] Print Name: [BUYER/LESSEE PRINTED NAME]
Generally speaking, the purpose of a real estate LOI is for a buyer, lease applicant, or their broker to make an offer to buy or lease property. An LOI is less binding than a formal agreement, allowing more room for negotiation and backing out.
LOI to Purchase Property
An LOI to purchase real estate is often drafted by the buyer following a viewing of the property and a discussion of terms with the seller. Once the letter has been delivered to the seller, the parties can negotiate and the buyer can clarify terms as needed. When both parties agree to the basic terms of the revised letter, they will sign the document and draft a purchase agreement.
Depending on the nature and value of the transactions, the parties may want to hire legal help to review and negotiate the final agreement . Once the definitive contract is executed, the transaction may be completed in accordance with its terms.
LOI to Lease Property
The process surrounding a letter of intent to lease property is similar to one to purchase real estate. The lease applicant will usually view the property and agree on basic terms. If they’re interested, they’ll draft their letter of intent and deliver it to the landlord. The applicant may be required to complete a rental application form and background check to be considered for the lease.
If both parties sign the LOI, it means they agree on the future lease terms and will likely move forward in drafting the final contract. There may be an inspection period, especially for commercial leases.
A real estate LOI is not a required step in the process of purchasing or leasing property. However, there are several benefits for both parties that make drafting an LOI worthwhile, including:
