Letter of Intent

Letter of Intent (LOI) is a pre-contractual document that outlines the preliminary terms and mutual understanding between a buyer and seller before executing a legally binding agreement in a real estate transaction. In Philippine property deals, the LOI serves as the first formal document signed during the acquisition process.

Key Components

A Letter of Intent in Philippine real estate typically includes:

• Exclusivity period – Prevents the seller from soliciting offers from third parties during due diligence
• Basic transaction terms – Purchase price, property description, and target timelines
• Buyer and seller identification – Full legal names and contact details
• Property details – Address, lot area (in sqm), and Transfer Certificate of Title (TCT) or Condominium Certificate of Title (CCT) number
• Proposed payment structure – Breakdown of reservation fee, equity, and financing terms
• Conditions precedent – Requirements before proceeding to the Contract to Sell

How it Works

You can think of the LOI as a "handshake agreement" that sets expectations before either party invests significant time or money.

1. Buyer submits LOI – The prospective buyer drafts and sends the LOI to the seller or developer expressing serious interest
2. Negotiation phase – Both parties discuss and refine basic terms (price, payment schedule, turnover date)
3. Exclusivity kicks in – Once signed, the seller cannot entertain competing offers during the agreed period
4. Due diligence – The buyer verifies the property's legal status, checks for liens, and reviews documents
5. Transition to binding agreement – If both parties are satisfied, they proceed to a Contract to Sell or Deed of Absolute Sale

With platforms like iRealtee, you can execute LOIs via electronic signature, accelerating deal closure and reducing paperwork delays.

Pros & Cons

Advantages:

• Demonstrates buyer's serious intent without full legal commitment
• Establishes exclusivity, protecting buyer's due diligence investment
• Clarifies key terms early, reducing negotiation friction later
• Can be signed digitally for faster turnaround

Disadvantages:

• Generally non-binding for commercial terms under Philippine law
• May create false sense of security if parties misunderstand its legal weight
• Exclusivity periods can delay the seller's ability to pursue other offers

Real-World Application

In Philippine real estate, the LOI is particularly useful for:

• Pre-selling condominiums – Buyers can lock in unit selection and pricing before the reservation fee stage
• Commercial property acquisitions – Corporate buyers use LOIs to secure exclusivity while conducting extensive due diligence
• Broker-facilitated deals – PRC-licensed brokers draft LOIs to formalize client interest and protect commission arrangements

Real estate platforms that support e-signature workflows enable buyers to submit LOIs remotely. This accelerates the sales cycle, especially for overseas Filipino investors (OFWs) purchasing property in the Philippines.

Related Terms

• Reservation Fee
• Contract to Sell
• Due Diligence
• Electronic Signature
• Transfer Certificate of Title

References

• Letter of Intent – Wikipedia
• Acquisition of Real Property – Baker McKenzie Global Corporate Real Estate Guide (Philippines)