The Memorandum of Understanding will serve as the basis for a final agreement. By approving the Memorandum of Understanding, both sides intend to continue negotiations in good faith. If both parties accept commitments in good faith, it means that they are both sincere in their intention to act and keep their promise. The calculation of the purchase price on the basis of “current information” is one of the many possibilities. A lawyer may discuss other alternatives, for example by referring to an existing information memorandum or other prepared document. Once the terms of the real estate have been successfully negotiated, a binding contract should be developed and carefully reviewed by each party. The document used at that time is either a contract of sale or a lease, depending on the nature of the relationship between the parties. In the case of a sales contract, the parties may wish a lawyer to review the contract before entering into an officially binding contract. However, for lease agreements, the transaction will be concluded as soon as the parties have signed. The seller is usually the most concerned about making a final agreement. The buyer may want to delay negotiations for as long as possible for a number of reasons. There are many reasons to start the buying process with a memorandum of understanding. Here are a few: Escrow is a frequent and appropriate request from buyers to cover potential post-closing claims against the seller for a certain period of time, which may arise from the seller`s insurance, warranties and indemnities.
The percentage of the total purchase price and the duration of the funds must remain on the fiduciary service before they are released to the seller are subject to negotiation. Fiduciary amounts are usually between 5% and 20% of the purchase price and funds are usually held for periods of 6 months to 3 years, depending on the problems that are protected. It is common for different amounts to be released over time. For example, there may be $1.5 million in Trust, with the parties agreeing, after 12, 24 and 36 months of release in increments of $500,000. Once the letter of intent is signed and the due diligence process (financial, operational and legal) runs smoothly, the next legal document to deal with is the contract for the sale of shares or assets. Lawyers for the transaction will use the Memorandum of Understanding as a blue print and will remember these points in a draft asset or share purchase agreement. The sales contract also includes all the legal points that cover the scope, content and effects of the various insurances, guarantees and indemnities, both of the buyer and the seller; fiduciary service reserved for a limited period of time to guarantee the seller`s insurance and indemnities; adjustments according to the closing and true-up procedure; the awarding of the purchase price; fees; expenditure;. . .
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