In some cases, you may want to have some proof that someone else is going to buy something from you or is willing to sell. Verbal agreements aren't preferable because people easily can refute them, yet you may not be ready to enter into a full-blown contract. This is where a letter of intent to sell comes in.
A letter of intent to sell is a formal document that expresses a person's intent to liquidate an asset. The asset may be anything of value that may be exchanged, including an entire business. There is no minimum value required for a letter of intent to sell.
The purpose of a letter of intent to sell is to set forth the basic terms of a sales transaction. It does not obligate the parties to complete the sale, but rather expresses the desire for the sale to occur in a particular manner. Once both parties understand the terms under which the seller will relinquish the asset, they proceed to a formal sales contract. The letter of intent is a method of formal clarification.
Technically, a letter of intent to sell is not a legally binding contract. In fact, people use these letters specifically because they want to informally clarify the sales terms in writing. However, letters of intent sometimes become complicated because those who write them include clauses that may be construed by courts as legally binding. The binding nature of the contract depends on how it is worded.
Having a letter of intent to sell is beneficial to the both the seller and buyer because the letter serves as evidence that there is an "agreement to agree" -- that is, it proves that a future transaction is to take place and that the parties have, in good faith, arrived at a set of sales terms. The letter can provide a sense of obligation to both parties to proceed with the sale. Letters of intent also provide a foundation for the formal sales contract; by hashing out basic terms, the parties know ahead of time what details they'll need to address later, and what the majority of the contract content will be.
The primary disadvantage of a letter of intent to sell is that it doesn't guarantee the buyer will receive the asset, or that the seller will receive payment. Either party can walk away from the deal and leave the other high and dry, unless the contract explicitly states the letter is binding or is otherwise worded such that the courts would uphold the obligation. As pointed out by the Physician's News Digest, a letter of intent can keep both the buyer and seller from exploring other options via "no shop" clauses. If the sale falls through, time is wasted. There is the potential for breaches of confidentiality. Lastly, parties may become too focused on the terms, hashing them out as if they were the full contract terms. This is not necessary because the letter of intent is meant only to summarize the agreement reached; focusing on the terms too closely can drag out the giving and acceptance of the letter.
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