Letter of Intent
Preconditions that occur prior to signing a letter of intent includes initial discussions, signing a confidential agreement and serious discussion of the proposed transaction. Letter of Intent has many provisions including describing the proposed transaction, overview of binding and non-binding provisions. The agreement can be made public or presented during a press release announcing the event. Public traded companies that make such announcements often see their company stock price move up in lieu of pending agreement, and thus notifying, related business competitors. This may disrupt their future business plans. In a corporation or business, senior management’s seriously negotiate finalizing a proposed business transaction. The LOI stipulates a timeline for negotiations, including a date to close the transaction and consequences if the deal fails to meet a deadline. If either party breaches a binding provision of letter of intent, a court will grant monetary damages, assuming that can be quantified. During this phase of negotiations, funds maybe allocated to pay employees to do research and prepare documentations. However, the Memoranda of an Agreement will rarely outline any way to recoup these funds, if the transaction fails to close or be finalized. If both parties haven’t previously agreed upon a confidential agreement, would be included in letter of intent. The Memoranda of Understanding could include a limitation of any cost of liability for each party if the transaction is not completed.
The tendency of most letters of intent, exclude specific terms, included in the finalized contract. This may cause many legal problems, if the LOI is held binding by a court, in which case the details or terms including liability limits, warranty waivers or detailed payment and stock terms must be agreed upon by both parties or interpreted by court decision, probably causing one or both parties an unfavorable ruling. Certainly, the LOI drafters should include as much detail as possible, in case it is upheld by a court, as a result less or minimal interpretation. Also, sometimes a letter of intent is signed immediately, preventing a deal from falling apart. However, one or both parties may conclude the agreement is finalized, and must be honored, despite any presumption prior to signing the document that further negotiations would continue.
Preparing a letter of intent serves a specific purpose. Various types of transactions a letter of intent may serve: A mutual fund shareholder may sign a letter of intent to acknowledge he/she will invest certain amount of money, certain specified times. In exchange, for future reduced sales charges. An undergraduate student prepares letter of intent, which is submitted to a graduate school admissions commission. The student outlines reason for wanting to apply to the school, experience in the field, why the field of study is important to the student, and what are the future plans once the degree is received. If the merit of the letter is viewed favorable, including correct spelling, proper grammatical context, and presented with a limited number of words, the student is accepted to the graduate school. When a student athlete signs a National Letter of Intent, he or she commits to the agreement. The agreement may outline, student is eligible to receive financial aid, provided the student attend the scholastic institution for one school year or play a certain sport. Also, after signing the LOI, no other school is allowed to recruit the student athlete. Prior to under going a construction project, a letter of intent would be signed by both parties, enabling work to get started. The LOI contract terms include price, duration and authorizes the contractor to spend up to a certain amount of money, before a formal agreement is signed. Absolutely, would be essential during emergency repair work, immediately after a hurricane or natural disaster. A letter of intent for a lease a property outlines an agreement between two parties. Providing in the agreement includes information regarding commencement date, tenant’s build – out period, termination date, base rent for each year, property taxes, property insurance, interior maintenance, utilities, and other costs. Also, during estate planning, a letter of intent prevents chaos or confusion, specifies who will take care and support a son or daughter, if the guardian or parent deceases.
Letter of Intent is usually prepared in due diligence, agreement upon financing and must comply with State and Federal Laws. A “no shop” clause is common provision added to memoranda of an agreement, prohibiting a seller from soliciting any competing offers from prospective third party buyers. Thus the seller is likely to conclude the transaction by a finalized contract. Also, “break – up fee” is sometimes agreed to be included in LOI. This provision offers a “break – up fee ” paid to the seller by the buyer, if the buyer does not proceed in good faith towards completion of the transaction.
Despite agreement of confidentiality or the provision is written within a letter of content, a prospective buyer will have access to valuable confidential information providing by the seller. An unscrupulous buyer may offer this information to a third party for monetary gain or for selfish reasons, prior to finalized agreement, which is not guaranteed to occur.
Reported in August 2006 Mills corporation (owners of retail and shopping malls) signed a binding letter of intent to sell its ownership of properties in Canada, Scotland and Spain for approximately $981 million.
