What Are the Benefits of Using Compehensive Proposals or Letters of Intent or "Deal-making Document?
Updated: Apr 24
A practice of comprehensively negotiating agreements and reducing them to a preliminary writing yields the following benefits:
1. Initiates Movement toward Desired Results. Take initiative and take control. The letter of intent in a typical real estate transaction is normally not meant to be a binding agreement. It is, however, an attractive means of assuring the parties that enough mutual interest and understanding exist to justify proceeding to the next step—usually responsive negotiation and binding documentation. Make it happen by putting it out there!
2. A comprehensive proposal or letter of intent also moves each of the parties – and other individuals within the respective business organizations – toward the desired transaction. In other words, summarizing an entire transaction in a letter, creates movement toward the intended results. The comprehensive proposal or LOI (referred to by the author as "deal-making documents") helps to refine the specific issues or contingencies that will have to be overcome or satisfied. The parties will begin to incur costs - such as due diligence, legal analysis, site planning, or space planning - not out of obligation to the other party, but as a reasonable business risk that an agreement will ultimately be reached. A comprehensive letter or term sheet presented early in a negotiation will usually be more direct and revealing than another face-to-face meeting without a document and typically gives you an advantage over competing interested parties.
3. Efficiency: Saves Time for the Deal Maker and the Deal Maker's Lawyer. The disciplined use of a letter of intent will reduce the deal maker's time, and the energy required to consummate the transaction. Moreover, the dealmaker's legal expense relative to the transaction should be reduced. Lawyer's time is more productive when used to legally document a fully-negotiated transaction and not stepping in to negotiate business points with the other party.
4. Writing a Deal-Making document Fosters Critical Thinking. Forcing yourself to reduce a deal structure to writing compels you to identify areas of unclear thinking and to clean up and refine incomplete deal points. Having a proposal form resembling the proposed transaction makes it much easier to ask yourself, "What haven't I covered? What should be in this particular proposal that wasn't in the form?" Starting from an organized template for a transaction type helps you to be at your creative best - significantly more effective than starting from scratch.
5. Creates a Competive Advantage. Especially in situations where a developer is in competition for a specific development opportunity, success may hinge in part upon the decision maker's assessment of the developer's written proposal. For example, in redevelopment projects or other competitive-bid situations where numerous developers are competing, a comprehensive, professionally, prepared proposal can give a developer a distinct advantage. Similarly, having a comprehensive letter of intent signed with a major tenant (even if not legally binding) may be the key to securing a timely loan.
The Bottom Line. In short, rid yourself of thinking that a letter of intent is a passive document to be completed when negotiations are over. Use a comprehensive proposal to show you know what you are doing and to dynamically initiate and move the targeted transaction forward right from the beginning. Take control using deal-making documents and make better deals faster!