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The Letter of Intent to Purchase, also known as an Offer Letter, is a preliminary document through which one party formally expresses its interest in acquiring a good or service under specific conditions. It serves as a preliminary step prior to the definitive agreement, adding structure, seriousness, and clarity to the negotiation process, without constituting— in most cases— a final purchase or sale contract.
This document allows the parties to define the basic terms of the agreement, align expectations between buyer and seller, and reduce risks before moving forward with a legally binding contract. Although it generally does not create full legal obligations, it plays a strategic role in purchase processes, particularly in real estate, commercial, and corporate transactions.
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What Is a Letter of Intent (LOI) Really Used For?
Formalizing the parties’ interest
The Letter of Intent to Purchase allows the buyer’s genuine and serious interest, as well as the seller’s willingness to negotiate, to be formally documented in writing. Although it is not usually a binding contract, it conveys commitment, professionalism, and helps reduce informal or ambiguous negotiations.
Establishing a roadmap for the negotiation
One of the main purposes of an LOI is to define the key points that will guide the negotiation, such as estimated price, timelines, payment structure, and conditions subject to review or due diligence. This streamlines the process and helps prevent misunderstandings before drafting the final agreement.
Exclusivity and confidentiality clauses (added value)
Although the letter is not always mandatory, it may include specific clauses with legal effect, such as negotiation exclusivity (to prevent the seller from dealing with third parties for a defined period) and confidentiality of the information exchanged. These clauses provide legal certainty and protect the interests of both parties.
Key Differences: Letter of Intent vs. Purchase and Sale Agreement
| Aspect | Letter of Intent to Purchase | Purchase and Sale Agreement |
|---|---|---|
| Legal nature | Preliminary document, generally non-binding | Legally binding contract |
| Main purpose | Express intent and define negotiation terms | Formally complete the purchase and sale |
| When it is used | Before the final agreement | Final stage of the purchase process |
| Legal obligations | Limited or none, except for specific clauses | Clear and enforceable obligations for both parties |
| Flexibility | High, allows adjustments during negotiation | Low, once signed it must be fulfilled as agreed |
Essential elements your letter should include
Identification of the parties
The Letter of Intent to Purchase should begin with the clear and complete identification of the buyer and the seller, including legal name, address, contact details, and, when applicable, information about the individual or legal entity acting as a representative. This element provides certainty and prevents confusion from the outset.
Description of the asset or property
It is essential to precisely describe the asset subject to the negotiation, whether it is real estate, a company, a commercial asset, or a service. The description should be detailed enough to identify it without ambiguity, including relevant characteristics, location, size, or any distinguishing features.
Proposed price and payment terms
The letter should state the estimated or proposed price, as well as the general payment terms, such as payment method, timelines, down payments, or deposits. Although these terms may be adjusted later, including them helps align expectations and streamline the negotiation.
Due Diligence period (audit)
In many transactions—especially real estate and corporate deals—a review or audit period is established during which the buyer may analyze the legal, financial, and technical condition of the asset. Defining this timeframe provides transparency and protects both parties before assuming definitive commitments.
Validity term and termination causes
Finally, the Letter of Intent should specify its validity period and the conditions under which it may be terminated. This prevents the document from remaining open indefinitely and establishes clear rules to conclude or withdraw from the negotiation in an orderly manner.
Letter of Intent to Purchase Template (Example)
The following is an illustrative template of a Letter of Intent to Purchase. Its content should be adapted to each specific transaction and does not replace professional legal advice.
[Buyer’s full name]
[Full address]
[Phone number]
[Email address]
[City, State], on [Date]
[Seller’s full name]
[Seller’s address]
Dear [Seller’s name]:
Through this letter, I hereby formally express my intention to negotiate the purchase of the asset located at [full property address or description of the asset], in accordance with the preliminary terms and conditions outlined herein.
Based on the information available, my initial proposal contemplates an estimated price of [amount in numbers and words], subject to the corresponding legal, technical, and financial verification, as well as to the execution of the definitive purchase and sale agreement.
This letter is intended to establish a basis for negotiation and does not constitute—unless expressly agreed otherwise—a definitive obligation to buy or sell. Any transaction shall be subject to the satisfactory completion of the review process (due diligence) and the formalization of the corresponding agreement.
This proposal shall remain valid until [expiration date], during which time the parties may continue discussions and define the final terms of the agreement.
Without further ado, I look forward to your response to continue with the negotiation process.
Sincerely,
[Buyer’s name]
[Signature]
Does a Letter of Intent to Purchase have legal validity?
One of the most common questions is whether a Letter of Intent to Purchase has legal validity. The short answer is: it depends on its content. Generally speaking, an LOI does not constitute a purchase and sale contract, but it may create partial legal effects when it includes expressly binding clauses.
The key lies in distinguishing between non-binding clauses and binding clauses. The former usually refer to proposed price, preliminary conditions, or the intent to negotiate and do not obligate the parties to complete the transaction. By contrast, binding clauses—such as confidentiality, exclusivity, non-compete provisions, or penalties—may be legally enforceable, even if the final purchase does not take place.
For this reason, it is essential that the letter clearly states which provisions are binding and which are not, avoiding ambiguities that could lead to legal disputes. Precise drafting protects both buyer and seller and reduces unnecessary risks.
Frequently Asked Questions about the Letter of Intent to Purchase
Is a Letter of Intent the Same as an Offer Letter?
In practical terms, a Letter of Intent to Purchase and an Offer Letter are often used as equivalent documents, as both formally express the buyer’s interest in acquiring a property or asset under certain preliminary conditions.
The main difference does not lie in the name itself, but in the context in which each term is used. In real estate transactions, the term Offer Letter is more commonly used, while in corporate, commercial, or investment processes, the term Letter of Intent or Letter of Intent (LOI) is preferred.
In both cases, these documents serve as a preliminary step before the final purchase agreement, allowing the parties to outline the proposed price, general terms, timelines, and, where applicable, confidentiality or exclusivity clauses. Generally, they are not legally binding, except for those provisions expressly stated as binding.
Therefore, when drafting or signing a Letter of Intent or an Offer Letter, it is essential to carefully review its content and legal scope, regardless of its title, in order to avoid misunderstandings and protect the interests of both parties.
Is it mandatory to sign an LOI?
No. Signing a Letter of Intent is not mandatory. Its use is voluntary and depends on the type of transaction and the level of formality the parties wish to give the negotiation. However, for higher-value transactions, it is often highly recommended.
What happens if I withdraw from the negotiation after signing?
In principle, either party may withdraw without legal consequences, provided that no binding clauses established in the letter are breached. If an exclusivity or confidentiality clause is violated, legal liability may arise.
Do I need a lawyer to draft it?
It is not mandatory, but it is highly recommended. A lawyer can help properly define the legal scope of the letter, identify risks, and ensure that binding clauses are clearly delineated.
Does a letter of intent obligate me to buy or sell?
In most cases, no. An LOI expresses an intention to negotiate, not an obligation to close the transaction, unless expressly agreed otherwise.
Can a letter of intent be used in real estate transactions?
Yes. In fact, it is very common in real estate purchase processes, as it allows the property to be reserved, establishes preliminary conditions, and provides time to conduct legal and technical reviews before signing the definitive agreement.
Conclusion
The Letter of Intent to Purchase is a strategic tool that brings order, clarity, and seriousness to any negotiation process. Although it does not replace the purchase and sale agreement, it helps establish the basis of the deal, align expectations, and reduce risks before assuming definitive legal commitments.
Understanding its legal scope—especially the difference between binding and non-binding clauses—is essential to using it correctly and safely. A well-drafted letter protects the interests of both parties, facilitates negotiation, and helps prevent future disputes.
If you are considering signing or drafting a Letter of Intent, it is best to do so with a preventive approach and, whenever possible, with specialized legal advice. This way, you can move forward with greater confidence and solid foundations from the very first step.
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