A letter of intent (LOI) is a preliminary document that outlines the basic terms of a proposed dental practice purchase before the parties negotiate a final purchase agreement. While many of its business terms are nonbinding, an LOI can shape the direction of the transaction and establish expectations for both the buyer and seller.
Although it is often viewed as an early step in the acquisition process, a well-prepared letter of intent can reduce misunderstandings, identify key deal points, and make negotiations more efficient. Because the LOI often serves as the roadmap for the rest of the transaction, it deserves careful attention before it is signed.
What Is the Purpose of a Letter of Intent?
A letter of intent allows the parties to confirm they generally agree on the structure and major business terms of the transaction before investing significant time and expense in due diligence and drafting definitive agreements.
An LOI also helps identify issues that could prevent the transaction from moving forward, allowing those concerns to be addressed early rather than after substantial work has already been completed.
What Does a Dental Practice Letter of Intent Typically Include?
A letter of intent commonly addresses:
- Proposed purchase price
- Payment structure
- Assets included in the sale
- Anticipated closing date
- Due diligence period
- Financing contingencies
- Confidentiality provisions
- Exclusivity or “no-shop” period
- Responsibility for drafting definitive agreements
Some letters of intent may also identify whether the seller will remain with the practice after closing, whether employment agreements are anticipated, or whether certain conditions must be satisfied before the sale proceeds.
While these terms are typically preliminary, they often become the starting point for the purchase agreement.
Is a Letter of Intent Legally Binding?
In many dental practice transactions, the primary business terms in a letter of intent are nonbinding, allowing the parties to continue negotiating the final purchase agreement without committing to complete the transaction.
However, that does not mean every provision is nonbinding.
Certain sections frequently are intended to create legal obligations, including:
- Confidentiality requirements
- Exclusivity or no-shop provisions
- Allocation of certain transaction expenses
- Governing law or dispute resolution provisions in some cases
Whether a particular provision is enforceable depends on how the document is drafted and applicable state law. Because of this, buyers should avoid assuming that a letter of intent is “just a formality.”
Why Is the Letter of Intent Important for Buyers?
Many buyers focus primarily on the purchase agreement, but the letter of intent often establishes the framework for those later negotiations. If important terms are omitted or described ambiguously, disagreements may arise over what is being sold, how payments will be made, or what obligations continue after closing.
A carefully drafted LOI helps reduce those surprises by encouraging both parties to discuss significant issues before substantial legal fees and due diligence costs are incurred.
What Happens After the Letter of Intent Is Signed?
Signing the LOI generally marks the beginning of the detailed stages of the acquisition process, not the end of negotiations.
After the letter of intent is executed, buyers typically move into:
- Financial and operational due diligence
- Review of leases, contracts, and employment matters
- Evaluation of regulatory and licensing issues
- Preparation and negotiation of the asset or stock purchase agreement
- Final financing arrangements
- Closing preparations
Information uncovered during due diligence may lead the parties to renegotiate terms or revise the transaction structure.
Should an Attorney Review the Letter of Intent?
Although a letter of intent is generally shorter than the final purchase agreement, it can have a lasting effect on the transaction.
Legal review before signing allows buyers to identify ambiguous language, determine whether any provisions create binding obligations, and confirm the proposed terms reflect the intended deal. We can also identify issues that should be addressed before negotiations move forward, reducing the risk of disputes later.
Reviewing the LOI early often provides greater flexibility than attempting to resolve significant disagreements after the parties have already invested considerable time and expense.
Start Your Dental Practice Acquisition on Solid Ground
Buying a dental practice involves a series of important legal and financial decisions, and the letter of intent is often the first document that shapes the transaction. Taking the time to review it carefully can help you avoid misunderstandings and position the purchase for a smoother closing.
At Mahan Dental Law, we help dentists evaluate letters of intent, negotiate favorable transaction terms, and move through the acquisition process with clear legal guidance. If you are considering purchasing a dental practice, contact us to discuss your proposed transaction before you sign the letter of intent.
