7 LOI Red Flags
That Cost Buyers Millions

Analysis: Open-ended exclusivity locks you in indefinitely while the seller slow-walks the process. We've seen buyers trapped for 6+ months while financing costs ballooned. Always cap exclusivity at 60-90 days with clear termination triggers.

Analysis: A fully binding LOI means you're legally obligated to buy at that price-even if due diligence reveals major problems. You lose all negotiating leverage. Only procedural provisions (exclusivity, confidentiality, expense allocation) should be binding.

Analysis: "Reasonable access" lets sellers hide problems by slow-rolling document requests. Specify exactly what you need access to and response timeframes. No access = terminate the exclusivity.

Analysis: If you can't walk away from a bad deal, you're not doing due diligence-you're just going through the motions. Preserve your ability to terminate for any reason during the due diligence period.

Analysis: Break-up fees create pressure to close bad deals. You'll think twice about walking away when it costs $100K+. In competitive situations, some fee might be appropriate-but negotiate it down and tie it to seller's actual expenses, not a windfall.

Analysis: Business conditions change between LOI and closing. Without adjustment mechanisms, sellers can drain working capital, delay receivables, or let inventory run down-and you pay the same price for a worse business.

Analysis: In an asset purchase, you're supposed to buy assets free of liabilities. "Assuming all liabilities" defeats the purpose and exposes you to unknown lawsuits, tax obligations, and creditor claims. Always explicitly list assumed liabilities-and nothing else.