Why an LOI? LOIs can save both time and money in con- nection with complex transactions where the documentation will be extensive. Reach- ing agreement on all key terms to the pro- posed transaction before generating massive amounts of paperwork is a wise and worth- while step. T e LOI can bring to the surface major issues that must be dealt with, and if there is an insurmountable obstacle, it is better to discover it sooner than later. Provided with a good standardized form
of LOI, non-lawyer negotiators may pru- dently reach agreement on the business and economic aspects even when the transaction has legal ramifi cations. So long as the LOI is clearly nonbinding, legal review may wait until preparation of the fi nal documents. T ere are exceptions, of course. In trans-
actions involving signifi cant tax or regula- tory matters, or in any case where litigation is pending or threatened, the key negotiators may want to have their lawyers present from the inception. On the other hand, the LOI is
Each LOI varies
with the particular transaction.
a waste of time if the transaction is routine and simple, especially if one party can dictate the terms.
What Terms? Each LOI varies with the particular transac- tion, but the following terms are common to most of them. • Correctly identify the parties and provide their contact information.
• Set out key terms already agreed to and any provisions still to be negotiated.
• Specify a time frame. If the parties are
unable to achieve a defi nitive agreement by the LOI's expiration date, one party should confi rm by written notice to the other that negotiations have ceased and that the LOI has expired.
William B. Sing and Tamarah Feigl are real estate transactional lawyers in the Houston offi ce of Fulbright & Jaworski LLP. Contact them at wsing@fulbright.com and tfeigl@ fulbright.com.
• Expressly state that the LOI is nonbind- ing and that neither party has any obli- gation to enter into any agreement not completely satisfactory to it. If there are exceptions to the nonbinding nature of the LOI, it should carefully identify those provisions, such as confi dential- ity clauses, exclusivity provisions, and parties bear their own expenses. In addition, the LOI should provide that any binding provisions will survive termination.
• Include that it will be superseded by the signed defi nitive agreement. T e proper use of carefully considered
LOIs in appropriate transactions will reduce your risk of failure, increase your likelihood of success, and save time and money.
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