The “Letter of Intent”

Posted: August 30, 2016 | Press

It Happens All The Time…

When opportunities present themselves there is a flurry of activity, until the last piece of the puzzle falls into place and “Voila,”—a deal has been struck and a letter of intent (LOI) is signed. Congratulations can be heard all around, along with “Oh, by the way, would someone get the LOI over to the attorney to document the deal?”

Not enough can ever be said about the importance of the LOI.  In most instances, it is the course headings of the race to close the transaction. For better or worse, each party will hold steadfast to the terms of the LOI, leaving little room for course correction down the road.

This makes for a less than desirable experience for those parties who have paid little attention to the LOI initially.  And, it makes little difference whether the transaction is a “purchase/sale” or “loan” or “investment contract,” because not paying attention and addressing the following issues in the LOI can contribute to losing the case.

The Purpose: It needs to be said and more importantly stated in the LOI, the document is a nonbinding expression of intent and only upon execution of a definitive agreement, are the parties bound (and then only to the terms of the definitive agreement, not the LOI). If a party desires confidentiality, a separate written agreement should be prepared.

The Players: All those who will have vested interests in the outcome of the transaction should be parties to the LOI. If a party’s participation in the transaction is likely to change prior to the closing, the requirements of any such change should be stated.

The Goods: The property to change hands should be described with detail allowing an outsider to understand what is being transferred and what is not being transferred.

The Promises: If the success of the transaction is dependent on the truthfulness of any party’s representation(s), some form of each of the representation should be included in the LOI. This should include the expectations of the parties as to the condition and functionality of the goods, as well as the extent to which the parties may be allowed to inspect and test the goods, or the parties may be required to “make good” after the closing, in the event that the goods are not as expected.

The Transfer: The conditions which must exist for the transfer of goods include necessary consents and governmental approvals, as well as the location and timing of the transfer, should be stated in the LOI.

Expenses: Responsibility for the direct and third-party costs, as well as expenses when entering, throughout, and upon exiting the transaction (successful or not), should be addressed and allocated among the players.

The Documentation: Identifying the documents necessary to close and assigning initial responsibility for drafting each is just prudent planning. The added benefit is the mental process causes the parties to consider items which should be addressed elsewhere in the LOI.

IT’S YOUR BUSINESS…IT’S YOUR FAMILY

At Ferruzzo & Ferruzzo, LLP, we know how important legal considerations can in life and this is why we take a very personal interest in your unique circumstances and work toward successful outcomes. Strong, lifetime relationships form the cornerstone of our practice and we’ve been Rooted in Relationship for over 40 years. As your legal needs change and evolve, let our broad range of experience, our risk-awareness and our business savvy navigate you through a rapidly-shifting legal environment.

Gordon D. Scholte

Mr. Scholte is a Partner at Ferruzzo & Ferruzzo, LLP, practicing in the firm's corporate, real estate and finance department. Mr. Scholte represents business owners, users and owners of commercial real estate, and Mr. Scholte has recently completed many notable real estate transactions throughout California and valued in excess of $150 million. Mr. Scholte also assists clients in securing acquisition, construction and permanent financing.  He recently completed a $62 million loan for the refinance of a portfolio of self-storage facilities in Southern California. Mr. Scholte may be reached by phone at (949) 608-6900 or by email at gscholte@ferruzzo.com.