A letter of intent to purchase is an agreement that deals with a sale negotiation. To see a sample of such a letter, scroll down.
A letter of intent is also known as Memorandum of Understanding/Memorandum of Agreement. It is a legal document that binds (conditional to satisfaction of the parties involved) two or more parties into a deal or agreement. A letter of intent is signed after all the parties involved in the contract hold exhaustive discussion and sign a confidentiality agreement. Letter of intent is viewed ambiguously under the law, as it has both, binding and non-binding legal status. According to late Arthur Corbin, author of Corbin on Contracts, “… a letter of intent is not a useless document, but it is not, in principle, a contract except perhaps a contract to continue bargaining in good faith.” Any letter of intent to purchase contains the features as outlined below.
Confidentiality: Letter of intent is signed after agreeing to a confidentiality document. If for some circumstances, the transaction (i.e. the said purchase) does not take place, each party agrees to keep the information in confidentiality.
Commitment: The letter of intent implies that all the parties involved in the transaction are aware of the deal and all issues related to it. If a representative signs on the company’s behalf, it is accepted that the senior management is equally responsible for the deal. A letter of intent is also considered a step towards serious negotiation that is to take place before the final transaction.
Advertisement: After agreeing to the terms and conditions of a letter of intent, the parties in the agreement usually, issue a joint press release. This is beneficial for raising the company’s stocks, position in the market, and sending a message out to the competitors.
Performance and a Time Bound Deal: The letter also has the mention of a deadline for closing the deal, and the consequences if the parties fail to meet the deadline. Once it’s signed, human resources are assigned towards the completion of the deal.
|October 2nd, 2011
Mr. Samuel James
Ward Brokerage & Co.
Sub: Residential property located at: 27th Mayfair, Denver.
The following are the basic terms upon which we would be prepared to purchase the property. The terms are, however, negotiable and will be incorporated into a formal agreement (the “Agreement”) to be negotiated. The basic terms are as follows:
Name of Seller:
Dear Mr. _______________,
We thank you for your cooperation regarding the potential transaction (hereafter called as Transaction) between _________________ (legal name of seller/company) and __________________________ (legal name of buyer/company). We would like to mention certain terms and conditions related to the transaction so that both the parties have better understanding.
Signature: __________________________ (buyer)
Name: _______________________________________ (seller)
Signature: ______________________________________ (seller)
Disclaimer: The sample letters mentioned above are generic, and the information provided in this article should not be substituted for the advise of an appropriate professional. Reader discretion is advised.