What business functions are served by a letter of intent?
Letters of intent are a common part of many business transactions. For example, the prospective purchaser of a commercial property might want to tie up the property while it explores zoning, financing or obtaining an anchor tenant. An agreement to keep the property off the market might be a binding provision, whereas the buyer’s obligation to complete the transaction may be completely nonbinding. If a seller of real estate believes he has a particularly good deal, he may want a letter of intent for the comfort of knowing the property is in fact sold if a certain limited number of contingencies are met. Letters of intent are often a part of business mergers or acquisitions. In such a case, the acquirer would favor a letter of intent before it goes to the time and expense of due diligence. The letter of intent would typically contain binding confidentiality provisions. On the seller’s side, it may provide a break-up fee if the transaction does not go forward, to compensate the seller for
