I met with a client to go over an “LOI” (or so he thought) for the purchase of property out of state. My client had already signed the LOI and was waiting on the other side to sign as well. The problem was that the document was not an LOI. It was a contract. My client had signed a binding contract for purchase of a multi-million dollar commercial property purchase without even having the document reviewed by his attorney.
As background, an LOI is a Letter of Intent. It is a non-binding document that is later used as a guide to draft a binding contract. I can have certain sections that are binding legally, but generally it is a non-binding document. The reason we use them is to get the main points of the negotiation out in the open to be sure that the parties are basically in agreement before spending time and money on drafting a final document.
Normally, a contract of this type would be negotiated through a series of “redlines” where each side suggests changes, and these changes are negotiated. Many of these changes are simple and approved without any issue. However, there will always be a few that become contested issues with serious back-and-forth negotiation. It is an important process, and on a deal of this size it is critical to get that document right.
So in this case, our client is bound to a very large contract which was barely negotiated at all. All before he even brought it to my attention. The good news is that the contract is not perfect, but the changes we would have made are not necessarily critical changes. Yes, I would have greatly preferred them. But we will be able to make due without them.
Also, one last critical point. The contract allows for a 30 day due diligence period where the property is reviewed, inspected, etc. During that time, the contract can be cancelled for any reason and the $100,000 earnest money is returned to my client. So we have that as a fallback if needed. However, I generally prefer to avoid terminating under due diligence unless there is a genuine due diligence issue at hand.
That’s all for today. Have an excellent day.
Launch Strong. Build Strong. Exit Strong.