Are you planning to purchase an office building for your dental practice? Negotiating a letter of intent (also known as an LOI) will be one of the first and most important steps you take on the way to owning your own building. Here are some quick tips to help you through that process.
1. Make sure your LOI is non-binding.
If you’re not careful, that letter of intent you wrote in a hurry at midnight could become your purchase and sale agreement. To make sure that does not happen, always add language to your LOI, similar to the following example, to make it clear that your letter of intent is non-binding:
This Letter of Intent: (a) is intended to be a non-binding expression of the principal terms and conditions on which the parties are willing to enter into contract negotiations for a definitive written real estate purchase and sale agreement with respect to the property described herein; (b) is not intended to be a legally binding contract or an agreement to enter into a legally binding contract; and (c) is not intended to create any obligations to any third party, including, but not limited to, any broker.
2. Keep your LOI simple.
Don’t use your LOI to work out every term of your deal. Instead, use your letter of intent to outline basic business terms, such as the price, the amount of earnest money and the closing date. Avoid including long, detailed paragraphs with specific legal language regarding the rights and duties of the parties. These kinds of details should be resolved at the contract negotiation stage. After all, why should you spend hours arguing about the details of the default provisions and the circumstances in which the contract can be assigned if you have not even agreed on a purchase price?
3. Include a deadline for the seller to sign your LOI.
Take control of the timing of your purchase right from the beginning. Avoid the trap of sending a signed LOI to a seller, then waiting and wondering if the seller will ever get back to you. Pick a reasonable deadline and include it in your LOI, using language similar to this:
This Letter of Intent may be accepted at any time prior to 5:00 p.m. Central Standard Time on May 5, 2012, after which time this Letter of Intent shall be deemed to have been rejected and shall become null and void.
4. Include any other important deadlines in your LOI.
Do you need time to obtain financing? State that your obligation to purchase the property will be contingent upon your ability to obtain financing within a stated number of days after the contract (not the LOI) is signed. Do you need to obtain any special municipal approvals in order to operate a dental practice on the property? State that your obligation to purchase the property will be contingent upon your ability to obtain those approvals by a certain date.
5. State that your attorney (not the seller’s) will draft the purchase agreement.
It is a big advantage to be the party who writes the agreement, rather than the party who reviews an opponent’s agreement. Secure this advantage for yourself by stating, in the LOI, that your attorney, not the seller’s, will draft the purchase agreement. You can do this by adding the following language to your LOI:
Within ten (10) business days after execution of this LOI by both Purchaser and Seller, Purchaser’s attorney shall deliver a draft of a proposed purchase agreement to Seller’s attorney.
6. Ask your attorney, not your broker, to prepare the LOI.
Brokers often insist on drafting letters of intent, but brokers are not attorneys, and, a broker-drafted letter of intent often creates problems for a purchaser. Although letters of intent are usually non-binding, it is often difficult for your attorney to argue that your purchase agreement should not include a provision specifically required by the broker-drafted LOI that you just signed. If you do not have your attorney draft your LOI, you should, at least, have your attorney review your broker’s LOI before it is executed. This brief review by your attorney may well save you both time and money when you negotiate your purchase and sale agreement.
This article was written by Janice L. Gauthier, Esq. Ms. Gauthier has an A.B. from Harvard University and a J.D. from Harvard Law School. She is the owner of The Gauthier Law Group, LLC, a boutique law firm that represents dentists, physicians, health care providers, professional service practices and other businesses and business owners in Wisconsin and Illinois. You can contact Ms. Gauthier at 414-270-3857 or by email. To learn more about Ms. Gauthier’s background and experience, visit her Google or LinkedIn profiles.
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