Why a Well-Drafted Letter of Intent is Worth Every Penny
When entering into a business deal, whether you’re buying a company or negotiating a commercial lease, there’s a crucial step that should never be overlooked: a well-drafted Letter of Intent (“LOI”).
At Race & Company LLP, we regularly assist clients throughout the Sea to Sky Corridor and beyond with both straightforward and complex business transactions. One common pitfall we see, regardless of the size or sophistication of the parties and the deal, is individuals rushing into negotiations or handshake agreements without first setting clear terms in writing. That’s why we almost always recommend starting with an LOI.
You can think of a LOI as the roadmap for your transaction. It sets out the key terms of a proposed deal before the parties commit to a final agreement. While LOI’s are generally non-binding, it helps to clarify critical details such as the purchase price, deposit structure, payment terms, timelines, and due diligence requirements. It can also cover provisions around exclusivity, confidentiality, and governing law. In more complex transactions, an LOI can go further by covering mechanisms like working capital adjustments, which help avoid surprises and disputes at closing.
This kind of early alignment prevents misunderstandings, reduces delays, and minimizes the risk of costly legal disputes. Just as importantly, a well-crafted LOI signals to the other side that you are serious, organized, and working with professional advisors. It sets a solid foundation for the negotiation of the definitive agreement and can give you a strategic advantage when ironing out the final terms. While it may feel like an added expense at the outset, investing in a professionally drafted LOI is often a fraction of the cost of fixing problems later, and it can save significant time and money as the deal progresses.
If you’re considering a business transaction, the Corporate and Commercial team at Race & Company LLP is here to help. Contact us today to ensure your LOI sets you up for success from the start.
