What is a letter of intent when I sell my auto shop, and what should I watch for?
A letter of intent, sometimes called an LOI, is a document that says the buyer and seller have agreed on the basic terms of a sale and want to move forward together. It's not the final contract, but it isn't meaningless either. It sets the price, the structure and the timeline that the full agreement will be built around.
If this sounds like youThe letter of intent is often the first real document a buyer puts in front of you, and it's easy to treat it as just a handshake in writing. It isn't. Some of what's in it will follow you all the way to closing, and a few things it leaves out can cost you later. It's worth understanding before you pick up a pen.
What you can do.
An LOI that sets the price and leaves the rest open
Some letters of intent are short and focused: here's the price, here's the target closing date, let's work out the details. That gives both sides room to negotiate. It also means more of the deal is still unsettled when you've already committed to this buyer.
An LOI with a detailed term sheet attached
A more thorough LOI spells out the earnest money, what's included in the sale, how the inventory will be counted and valued, the condition of the equipment and what happens if something fails inspection. More detail upfront means fewer surprises later.
An LOI that includes an exclusivity period
Most LOIs ask you to stop talking to other buyers for 30 to 60 days while this buyer does their due diligence. That's reasonable, but make sure the period has an end date and that the buyer is committed to moving on a real timeline.
What to watch for.
- Find the exclusivity clause and read it carefully. If you agree to stop talking to other buyers and this deal falls apart at 55 days, you've lost time you can't get back. Know exactly when and how the exclusivity ends.
- Look at what the LOI says about who pays for what if the deal doesn't close. Due diligence costs money. Make sure you know what you're responsible for if the buyer walks away.
- Check whether the price is a fixed number or whether it adjusts based on inventory, equipment condition or working capital. A price that looks good at signing can change before closing if the terms aren't pinned down.
Owner to owner, and it stays private.
When Lotus puts an LOI in front of you, we'll walk through it line by line so you know exactly what you're agreeing to and what comes next. We won't rush you past the parts that matter. Talk to James before you sign anything, and bring your own lawyer into the conversation.
James StephensonLotus, Massachusetts and Connecticut
Quick answers.
Is a letter of intent legally binding?
Parts of it usually are and parts usually aren't. Confidentiality and exclusivity clauses are typically binding. The price and other deal terms are typically not binding on their own but are hard to walk back without damaging the relationship. Your lawyer can tell you what's binding in the specific document you're looking at.
Should I have a lawyer review the LOI before I sign?
Yes. It's a short document but it shapes the whole deal. An hour with your own attorney at this stage is worth much more than trying to fix things later in the purchase agreement.
What is earnest money and do I have to ask for it?
Earnest money is a deposit the buyer puts down to show they're serious. You can ask for it. It's not guaranteed in every deal but it's common, and it gives you something if the buyer backs out without a real reason.
Can I keep talking to other buyers after I sign an LOI?
Usually not, if the LOI has an exclusivity clause, which most do. That's why the exclusivity period and what ends it matters so much. If a second buyer approaches you during the period, tell your lawyer before you say anything to them.
What happens if due diligence turns up something the buyer doesn't like?
They may ask to renegotiate the price, ask you to fix something before closing, or walk away. The LOI usually spells out what their rights are if that happens. It's worth understanding that before you've agreed to exclusivity.
Thinking about what comes next for your shop or building?
Tell James a little about it. Only James reads it, and the conversation stays private. No pressure, no broker and no mailing list.