what does letter of intent legal meaning?

In Leasing Property - Asked by mike f. - Feb 13, 2015
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Answer(s)

Scott R.
Owner/Investor
Santa Paula, CA

Not much from my point of view. The "letter" is merely an indication one of the parties is giving terms for the other party to consider....subject to completion of a formal contract which would then be binding legally.
Such letters can be helpful to avoid the back and forth of negotiations.

Feb 13, 2015
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Chris S.
Broker/Agent
New Canaan, CT

Letter of intent is not legally binding. This is a indication of an intention to base a contract on. The LOI spells out the terms by which one party makes an offer to another party. Many changes can be made to the LOI before it is accepted by the LL.

Feb 13, 2015
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Margarita F.
Broker/Agent
East Elmhurst, NY

The letter of Intent states your true interest in the purchasing of the property. Its purpose is to initiate the bargaining of the sale terms. You specify the price you are willing to pay, your conditions, the amount you will give as earnest money, down payment, etc. You can offer to present upon request your credentials as a buyer, developer..) Assuming that the seller has several buyers interested in the property, with the letters of intent, he can select who of those are the strongest buyers based on what they are offering and requesting. If the seller agree/likes to the terms of the LOI, then attorneys start talking to enter into formal negotiations to prepare the contract. I believe a good LOI is important to put your self in front of the rest when many others want the same property.

Feb 13, 2015
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Michael E.
Broker/Agent
Houston, TX

The letter of intent (LOI) is used to negotiate the main points of the contract or lease. Once the main points are agreed upon, a formal agreement is drafted and more specific terms are set forth. It has been argued more than once in court that a LOI can be legally binding but your broker or attorney can insert language to help protect you from the binding aspect.

Feb 16, 2015
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Joe L.
Broker/Agent
Dallas, TX

A LOI is written specifically to be non-binding, with wording specifying that only a formal contract is binding. My preference is to come in with an actual contract rather than an LOI. When I receive a LOI, our counter will always be an actual contract. Many of the "TV Real Estate Gurus" have canned LOI's for their students to use. When I receive one of those canned LOI's, it goes directly into the circular file.

Feb 16, 2015
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Arista R.
Owner/Investor
Tonawanda, NY

LOI's are a formal letter that expresses interest to go into a contract with a specific set of terms but is non-binding in nature and has no legal consequences.
Think of it like an engagement vs marriage, and it is commonly used to showcase to the seller their is strong consideration of the property. LOI's should also be used to express any terms that have been negotiated in some capacity. If terms have not been negotiated, often is the case in which your broker should do so prior to submitting it, otherwise you may be offering more than necessary. Use your broker to put together and seek advice on generally acceptable terms based on the current local market. They will always vary with every deal since not any deal is the same, however depending on the demand and marketability of the property, your broker should be well informed to negotiate accordingly. Anyone looking in the Buffalo, NY area seeking professional real estate advisory, I am happy to offer representation to you. Call 716-864-1929.

Feb 17, 2015
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Ken S.
Broker/Agent
Westlake Village, CA

There are also binding letters of intent. Make sure you are clear as if the letter is binding or not. In the purchase of a property by a developer, there are many instances where the Letter of Intent is binding and can potentially tie a property up if executed.

Feb 17, 2015
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Francis L.
Broker/Agent
Santa Clarita, CA

A Letter of Intent (LOI), is generally considered a non-binding agreement stating basic points of preliminary negotiated terms of what a Buyer or Seller would agree to IF the property was to be purchased or sold. It should state in writing in the LOI that it is non-binding. The LOI should always be in simple and basic terms and verbiage that is not intimidating to your client.
NOTE: I have had a prospective buyers' broker that was an attorney attempt to manipulate the verbiage in the the LOI, even though it stated in writing that it was non-binding, Their attempt to manipulate my seller caused them to lose the property to someone else. The seller was very offended by them. Intimidation does not work. Simple and basic communication works best for all parties involved.
This is not legal advice. Always consult with the appropriate professionals for legal advice.
Good luck!

Feb 18, 2015
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Thomas D.
Broker/Agent
Basalt, CO

A letter of intent is just that. It is a non-binding indication of the interest of a potential buyer. This is often the preferred first step in negotiating on a commercial property where the eventual contingencies of a purchase are not yet known or will change. Upon a reply from the owner to the potential buyer, a contract may be the be the next step. Otherise this vehicle provides a non-binding proposal or counter proposal before a buyer must spend sometimes substantial amounts to further evaluate all aspects of the properrty.

Feb 19, 2015
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John L.
Broker/Agent
Lake Hopatcong, NJ

LOI's
are an instrument used to make an offer on commercial and certain other types of properties. In general, it will outline the intent to purchse, purchase price and terms. It is the first step in the process and once agreed to. the sellers attorney usually, not always, writes up a formal contract of sale. The LOI is not legally binding. All final terms are negotiated via the contract of sale.

Feb 20, 2015
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Matt B.
Broker/Agent
Brookline, MA

Always ask a lawyer!
I read an article that said that it is possible that a letter of intent-if written in such a certain way "could" be a potentially legal agreement.

Feb 20, 2015
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Kiana F.
Broker/Agent
Ann Arbor, MI

Depending upon the state you are located within, a letter of intent is binding. Some courts also have different factors in determining whether or not the agreement can be binding, including the actions of the party. A signed letter of intent essentially states that you are agreeing to agree or negotiate terms of a particular transaction. It also indicates that you are acting in good faith to come to a meeting of the minds on the transaction as a whole. You can place non-binding language in the LOI, but depending upon whom your client is and what is being negotiated determines whether or not such a clause will be beneficial. BTW, I am a licensed attorney.

Feb 24, 2015
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Mitchell P.
Broker/Agent
San Jose, CA

IMHO Diana K's answer is best so far.
Remember, in order for a contract to be formed, it must be intelligible, or ascertainable of a fixed meaning, and provide enough particulars so that there is no inherent frustration of purpose and it must be accepted. An offer must be made and accepted for a contract to be formed. Only when a contract is formed is it binding. On the other hand, one can be estopped from going back on his word if another relies upon that word to his detriment. The principals of estoppel, ratification, authority to bind, ostensible authority, express authority, agency and principal relationships and implied authority are thing you really need to understand to understand when you are binding yourself. For purposes of this answer, just remember, your word is your bond in this business so be careful and precise when you try to say what you mean. If you are not sure how to say what you mean, consult an attorney. If you are not well familiar with the list of terms m just mentioned, you need to brush up before making any deals.
Examples of contract formation process:
"I am offering you $1,000,000 cash for your property as is with no contingencies if you accept this offer by tomorrow." would bind you if the seller wrote you back tomorrow stating to the effect, your offer of yesterday, in which you offer to buy my property with no contingencies for $1,000,000 cash in US dollars is accepted; you can deliver the cash to me in front of city hall by 5:00 p.m.." would be a contract formation which would bind both parties because a meeting of the minds is evidenced in the two statements that is clear and intelligible. However, if the buyer then does not show up with the money, and asks to give the money the next day, say, because the acceptance came too late for him to dig up the cash from the back yard before 5:00 p.m., then an extension of time to perform could be requested. and the buyer could argue that the acceptance was untimely and thus did not bind him. If on the other hand the original offer stated if you accept by noon, then the acceptance would have to be delivered by noon in order for a binding contract to be made. If no place for exchange of the money is designated by either party and made known to the other, there is an inherent frustration of purpose because neither knows where to go to exchange the money and thus consummate the deal. i.e. the contract is too vague to be intelligible on this point. In either case, if the seller said "Great" but I need assurance you will record the deed," a counter offer has been made that the buyer now needs to accept in order for a binding contract to be made.
"I intend to buy your property provided I can find the money." is intelligible, but does not provide an ascertainable price or a clear intention that the person has the capability to buy the property or an cognizable idea as to when. So even if the seller writes back, "Great! Come on over for tea so we can discuss your purchase." The only thing that has been extended is a wish to buy a property and the only thing that has been counter offered is a cup of tea with the talk.
In other words, if you don't have enough experience, legal knowledge, and common sense to know when you are making a potentially binding offer, find an attorney or senior broker to advise you. At a minimum, list your contingencies and conditions, (such as inspections, finding out your intended use will be allowed by the jurisdictions in which the property is located etc.) and state that this is an intention that is open to further negotiation around these points and as yet unidentified concerns of the seller etc. and will only become binding once the parties have had advice of counsel etc and reduced our full terms to a contract. This gives you a way of expressing your intentions and desires while giving the seller a way to come back with his concerns and desires. It gives your agents a chance to do what they should be doing, which is listening to each other and their principals and looking for ways to enhance value to each party. E.g., "Now that we understand our terms, contingencies, and price; let's see how we can structure the exchange of money so that the government does not rob the seller of cash and the buyer of property value."
I hope this helps.

Mar 4, 2015
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John L.
Broker/Agent
Durham, NC

An LOI or letter of intent is worthless. They impress only the desperate or ignorant.

Mar 5, 2015
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Sam P.
Redlands, CA

A letter of intent should be a non-binding invitation to begin negotiations. It must be worded carefully so that it is not seen as an offer, then it would be binding if accepted by the other party. Be sure to consult with an attorney to make sure that your wording is correct.

May 11, 2015
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