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Real Estate Letter of Intent – Purchase or Lease

The real estate letter of intent outlines broad terms for negotiating a final agreement between a buyer or tenant and an owner of a property. The purpose of a letter of intent is to get both parties to come to a non-binding agreement over the terms of a sale or lease. Once the letter is signed, the parties will each go to their respective counsel and draft legally binding contracts, commonly in the form of a purchase agreement or lease agreement.

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Lease – Commercial Property

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Lease – Residential Property

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Purchase – Commercial Property

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Purchase – Residential Property

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Table of Contents

Is a Letter of Intent Binding?

It is up to the parties to determine whether the letter is legally binding. After this decision is made, a statement indicating the binding status of the document should be incorporated into the language of the form. Without such a written declaration, it will be far more challenging to enforce the validity of the agreement in court, and the case would likely be dismissed due to the uncertainty of the letter’s intent.

How a Letter of Intent Works (5 Steps)

Step 1 – Buyer/Tenant Views the Property

The buyer or tenant will visit the property to evaluate the premises and determine whether space suits their real estate needs. It is always advised to perform a thorough walkthrough to test appliances, plumbing, window quality, heating, and to check for visible material and structural defects.

Step 2 – The Parties Negotiate

If the buyer or tenant chooses to proceed with the transaction after assessing the property, they should immediately complete a letter of intent and present it to the owner for review. This letter offers a general description of the proposed real estate transaction including the desired financial terms and completion dates. Negotiations between the parties will likely continue if the owner is not satisfied with the initial offer.

Step 3 – Binding Arrangement is Made

Once the real estate conditions have been successfully negotiated, a binding contract should be drafted and carefully reviewed by each party. The document used at this time will either be a purchase agreement or a lease depending on the nature of the relationship between the parties. For purchase agreements, the parties may wish to have a lawyer examine the contract before entering into an officially binding contract. However, for leases, the transaction will be finalized once the parties sign.

Step 4 – Inspection Period (Purchase Agreements Only)

Purchase agreements typically contain a clause that grants the buyer a specified amount of time during which they can perform a proper inspection of the premises. If the property fails to meet their standards, the buyer can usually back out of the agreement or negotiate new terms with the owner. The inspection should be performed by a qualified professional as they can more easily spot issues that might affect the value of the property going forward. If the buyer is satisfied with the inspection results, or if no inspection is performed during the inspection period, the buyer’s offer will be accepted, and the property shall be transferred to their name following the closing period.

Step 5 – The Closing (Purchase Agreements Only)

The closing is a predetermined date when ownership of the property is officially transferred to the buyer. Depending on the state where the property resides, the parties may need to meet in person along with various entities (e.g., notary, escrow company, titling insurance agent) to complete the transaction, or they may be able to conclude the process separately. Regardless of the closing method, it will always involve the parties signing the necessary paperwork and paying the fees associated with the transfer of ownership.

Sample – Real Estate Letter of Intent

REAL ESTATE LETTER OF INTENT

 

Effective Date: June 1, 2019

RE: Intent to Lease a Commercial Property

This real estate letter of intent (the “Letter of Intent”) represents the basic terms for an agreement between a Lessee and Lessor. After this Letter of Intent has been made, a formal agreement may be constructed to the benefit of the Parties involved.

I. The Buyer or Lessee: Salmon Bass (the “Buyer” or “Lessee”).

II. The Seller or Lessor: Mike Schmidt (the “Seller” or “Lessor”).

III. Property Address: 101 Property Way, Samford, Connecticut 06912 (the “Property”).

IV. Property Type: The Property is defined as a commercial space.

V. Real Estate Transaction: This Letter of Intent is for the lease of the Property (the “Real Estate Transaction”).

VI. Financial Terms: The Buyer or Lessee intends to lease the Property for Two Thousand Dollars ($2,000) per month. Payments shall be made on the 1st day of each month with the first payment due upon the commencement of the lease (the “Base Rent”).

VII. Payment Method: Payment of the Purchase Price or Base Rent shall be made in the following manner: Lessee will issue post-dated checks for the entirety of the lease term. All checks will be provided to the Lessor within 5 days of signing a binding lease.

VIII. Bank Financing: The Buyer or Lessee has made it known that their ability to pay the Purchase Price or Base Rent is not conditional on their ability to obtain financing.

If payment is conditional on financing, it shall be under the following terms: N/A.

IX. Purchase Conditions: If the Real Estate Transaction is for the purchase of the Property, the following conditions shall apply:

  1. Closing. The Closing shall occur on _______________________, 20____, or earlier by mutual agreement (the “Closing”). Any extension to the Closing must be agreed upon in writing by the Buyer and Seller.
  2. Closing Costs. All costs associated with the Closing shall be the responsibility of ☐ the Buyer ☐ the Seller ☐ both Parties bearing their own expenses.
  3. Possession. Possession of the Property shall be given on _______________________, 20____, or earlier by mutual agreement (the “Possession”). Any extension to the Possession must be agreed upon in writing by the Buyer and Seller.
  4. Property Inspection. After a binding Purchase Agreement has been made, the Buyer shall hold the right to have the condition of the Property inspected by a person of their choosing. The inspection shall occur no later than ____ days after a Purchase Agreement has been made.
  5. Disclosure Report. After the Property has been inspected, the Buyer shall have an additional ____ days to report any new disclosures to the Seller in writing. If the Buyer and Seller cannot reach a mutual agreement within ____ days after delivery of the written disclosures, the Purchase Agreement shall be terminated with any earnest money being returned to the Buyer.
  6. Standstill Agreement. Following the execution of this Letter of Intent, and until the Closing, the Seller shall not negotiate for the sale of the Property with any other party unless either the Buyer and Seller agree in writing to terminate this Letter of Intent, or the Buyer and Seller fail to sign a Purchase Agreement by _______________________, 20____.

X. Lease Conditions. If the Real Estate Transaction is for the lease of the Property, the following conditions shall apply:

  1. Late Rent. If the Lessee fails to pay the Base Rent for more than 15 days after it is due, a late fee of Fifteen Dollars ($15) may be charged each day until the overdue amount is paid.
  2. Security Deposit. A security deposit in the amount of Two Thousand Dollars ($2,000) shall be due prior to or upon the signing of a lease.
  3. Subletting. The Lessee may not sublet the Premises without first obtaining the prior written consent of the Lessor.
  4. Appliances and Furniture. The Landlord shall provide the following items for the use of the Lessee: Fridge, stove, washer, dryer.
  5. Parking. The Lessor shall provide 1 parking space(s) to the Lessee for a fee of Thirty Dollars ($30). This amount shall be paid to the Lessor on a monthly basis in addition to the Base Rent.
  6. Pets. The Lessee shall have the right to 2 pet(s) on the Premises. The following types of pets are allowed: Cats, dogs.

XI. Expenses: If the Real Estate Transaction is for the lease of the Property, the Lessee shall be required to pay the following monthly expenses in addition to the Base Rent: Heat, electricity.

The Lessor shall be required to pay the following monthly expenses: All other property expenses.

XII. Lease Term: If the Real Estate Transaction is for the lease of the Property, the term of the lease shall be a fixed period commencing on the 1st day of July, 2019, and expiring on the 30th day of June, 2020.

XIII. Lease Termination: If the Real Estate Transaction is for the lease of the Property, the lease may only be terminated under the following conditions: The Lessee shall have the right to terminate the lease by providing at least 90 days’ notice to the Lessor.

XIV. Binding Effect: This Letter of Intent shall be considered non-binding. Therefore, the Parties acknowledge that this Letter of Intent is not enforceable by any Party. The terms outlined herein are solely for the purposes of reaching an agreement in the future, of which the Lessee and Lessor are not bound.

XV. Additional Provisions: The security deposit shall be returned to the Lessee within 30 days of vacating the property. Any deductions to the deposit shall be itemized in writing by the Lessor and reported to the Lessee when the deposit is returned.

XVI. Currency: All mentions of currency or the usage of the “$” icon shall be known as referring to the US Dollar.

XVII. Governing Law: This Letter of Intent shall be governed under the laws of the State of Connecticut.

XVIII. Acceptance: If you are agreeable to the aforementioned terms, please sign and return a duplicate copy of this Letter of Intent by no later than June 15, 2019.

 


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