Commercial

In commercial real estate, a “letter of intent” (LOI) and “proof of funds” are two important documents or instruments used during the process of buying or leasing commercial properties. Here’s what each of them entails:

1. Letter of Intent (LOI):

   A Letter of Intent is a preliminary written document that outlines the key terms and conditions of a potential real estate transaction between a buyer or tenant and a seller or landlord. It serves as a starting point for negotiations and provides a framework for the eventual purchase or lease agreement. Here are the main components of an LOI:

   • Property Description: The LOI typically identifies the property in question, including its address, legal description, and any other relevant details.
   • Purchase or Lease Terms: The LOI specifies the proposed terms of the transaction, such as the purchase price (for buyers) or the lease terms (for tenants), including rental rate, lease duration, and any renewal options.
   • Due Diligence Period: The LOI may outline the duration and scope of the due diligence period, during which the buyer or tenant can investigate the property’s condition and other factors.
   • Contingencies: It may include contingencies or conditions that must be met for the transaction to proceed, such as obtaining financing, securing required permits, or reaching a satisfactory inspection outcome.
   • Earnest Money Deposit: The LOI often addresses the initial deposit (earnest money) that the buyer will provide as a sign of good faith. The amount and terms for the deposit are specified.
   • Exclusivity or Non-Binding Clause: The LOI may indicate whether the parties are bound by its terms or whether it’s non-binding, allowing for further negotiations and a final contract.
   • Target Closing Date: For purchase transactions, the LOI may specify the target closing date, indicating when the deal is expected to close.

   The LOI is not a legally binding document in itself, but it lays the groundwork for a formal purchase agreement or lease contract. It’s a valuable tool for clarifying the parties’ intentions and ensuring they are on the same page before proceeding with more detailed negotiations.

2. Proof of Funds:

   “Proof of funds” is a document or financial statement that demonstrates a buyer’s or tenant’s ability to meet their financial obligations in a real estate transaction. It’s a crucial component in commercial real estate deals, particularly for sellers or landlords who want assurance that the other party has the financial capacity to complete the transaction. There are two common forms of proof of funds:

   • Bank Statements: Buyers or tenants can provide recent bank statements or letters from their financial institutions verifying the availability of funds to cover the purchase price or lease payments. These statements should be up-to-date and clearly show sufficient funds.
   • Pre-approval Letters: For buyers seeking financing, a pre-approval letter from a lender is often used as proof of funds. This letter indicates that the buyer has been pre-approved for a mortgage loan and can secure the necessary funds to close the deal.

Proof of funds is typically requested during the negotiation and due diligence process. It’s an important step in assuring the seller or landlord that the other party has the financial means to proceed with the transaction, whether it’s a purchase or a lease.