What Is a Letter of Intent in a Dental Practice Purchase?
When a buyer and seller reach an initial understanding about the sale of a dental practice, one of the next steps is often preparing a Letter of Intent (LOI).
For dentists who have never purchased or sold a practice, the term may be unfamiliar.
Is it a contract? Does it obligate the buyer to purchase the practice? Can either party change their mind after signing it?
These are important questions because a Letter of Intent can establish the framework for the entire transaction.
While an LOI is generally not intended to serve as the final purchase agreement, it plays an important role in documenting the parties’ expectations before moving forward with legal agreements, financing, and due diligence.
Understanding what an LOI does—and what it doesn’t do—can help both buyers and sellers avoid misunderstandings later in the process.
What Is a Letter of Intent?
A Letter of Intent is a written document outlining the principal terms under which a buyer proposes to purchase a dental practice.
It is typically prepared after the buyer has reviewed preliminary information about the practice, visited the office, and decided to pursue the opportunity.
The LOI provides a starting point for the transaction by documenting the basic agreement between the parties.
Rather than immediately negotiating a lengthy purchase agreement, the buyer and seller first establish whether they agree on the most important business terms.
These commonly include the purchase price, financing expectations, proposed closing date, and other conditions.
Think of the LOI as a roadmap for the transaction, rather than the transaction itself.
What Terms Are Typically Included in an LOI?
Every dental practice transaction is different, but a Letter of Intent commonly addresses several important items.
Purchase Price
The LOI generally identifies the proposed purchase price for the practice.
It may also describe whether the price includes equipment, furniture, supplies, goodwill, and other business assets.
If real estate is involved, the parties should clarify whether it is being purchased separately or whether the buyer intends to lease the office.
Deposit
Some transactions require the buyer to provide a deposit when the LOI is executed.
The amount, timing, and conditions under which the deposit may be refunded should be clearly documented.
For example, a deposit may initially remain refundable during a specified period but become nonrefundable once the parties execute the definitive purchase agreement, subject to the terms of that agreement.
The parties should understand exactly when the deposit is due, who will hold it, and what happens if the transaction doesn’t close.
Financing Contingency
Most dental practice buyers obtain financing to complete the acquisition.
An LOI may specify that the purchase is contingent upon the buyer obtaining acceptable financing.
This protects the buyer from being obligated to complete a purchase without the necessary funds, subject to the terms of the agreement.
However, sellers also have a legitimate interest in knowing that the buyer is financially qualified.
A financing contingency should not become an open-ended opportunity for a buyer to delay the transaction indefinitely.
Due Diligence
The LOI may establish a period during which the buyer can review additional financial, operational, and legal information about the practice.
This can include tax returns, production reports, patient statistics, equipment information, employee arrangements, and other relevant documents.
The purpose is to allow the buyer to verify the information provided and determine whether the practice meets their expectations.
A clearly defined due diligence process can help prevent unnecessary delays and disagreements.
Proposed Closing Date
The parties will generally identify a target closing date.
This gives everyone involved a timeline to work toward, including attorneys, lenders, accountants, and other advisors.
However, the actual closing date may depend on financing approval, lease arrangements, regulatory requirements, and completion of the legal documents.
Seller Transition
Many buyers want the selling dentist to remain involved for some period after closing.
The LOI may outline the expected transition arrangement, including its approximate duration and whether the seller will provide clinical services.
The details are generally addressed more fully in the definitive agreements.
Restrictive Covenants
A buyer will often expect the seller to agree to reasonable restrictions on competing with the practice or soliciting patients and employees after the sale.
The LOI may identify the general expectations for these provisions.
Their enforceability depends on applicable law and the specific circumstances, so the attorneys should carefully review the proposed terms.
Is a Letter of Intent Legally Binding?
This is one of the most important distinctions to understand.
A Letter of Intent may be primarily nonbinding, but that doesn’t necessarily mean every provision is nonbinding.
In many transactions, the LOI states that the proposed purchase remains subject to the execution of a definitive purchase agreement.
However, certain provisions may be intended to create enforceable obligations.
Examples include:
- Confidentiality requirements
- Exclusivity or no-shop provisions
- Responsibility for certain expenses
- Deposit or escrow arrangements
- Other specifically identified obligations
The wording matters.
A document titled “Letter of Intent” isn’t automatically nonbinding simply because of its title.
Both buyers and sellers should have their attorneys review the LOI before signing it.
Why Is an LOI Important for Sellers?
For a seller, the LOI provides an opportunity to evaluate whether the buyer’s proposed terms align with the seller’s expectations.
The purchase price is important, but sellers should also consider:
- Whether the buyer is financially qualified
- How the purchase will be financed
- The proposed closing timeline
- Any conditions that could delay or prevent closing
- The expected transition period
- Whether the buyer is requesting exclusivity
An LOI can also help identify potential disagreements before the parties invest substantial time and money in preparing definitive agreements.
For example, if the seller expects to retire immediately but the buyer wants the seller to remain for six months, that issue should be discussed early.
The same is true if the buyer expects to purchase the office real estate but the seller intends to retain it.
Resolving major differences at the LOI stage can make the remainder of the transaction more efficient.
Why Is an LOI Important for Buyers?
For buyers, the LOI demonstrates serious interest in the practice while establishing the principal terms under which they are willing to proceed.
It can also help organize the next stages of the acquisition.
Once the LOI is accepted, the buyer may begin or continue:
- Working with an acquisition lender
- Conducting detailed due diligence
- Coordinating with an attorney and accountant
- Reviewing the office lease
- Planning the ownership transition
However, buyers should avoid treating the LOI as a casual expression of interest.
Even if the proposed purchase is nonbinding, the document may contain important commitments.
A buyer should understand those obligations before signing.
What Happens After the LOI Is Signed?
Once the buyer and seller execute the LOI, the transaction generally moves into a more detailed phase.
The attorneys begin preparing the definitive agreements, while the buyer works through financing and due diligence.
The parties may also need to address matters such as:
- Lease assignment or negotiation of a new lease
- Real estate purchase arrangements
- Employee and associate agreements
- Accounts receivable
- Equipment and inventory
- Seller transition compensation
- Patient record transfer procedures
- Closing conditions
Some issues may require further negotiation.
The LOI establishes the starting point, but the definitive agreements contain the detailed legal terms governing the transaction.
Can the Purchase Price Change After an LOI Is Signed?
It can, depending on the circumstances and the terms of the LOI.
For example, due diligence might reveal material information that wasn’t previously available or understood.
A significant discrepancy in financial performance, an undisclosed liability, or an unexpected operational issue could justify further discussion.
However, buyers shouldn’t assume that signing an LOI gives them an opportunity to renegotiate the purchase price without a legitimate reason.
Similarly, sellers shouldn’t assume they can unilaterally increase the price after reaching an agreement.
The purpose of the LOI is to establish a good-faith understanding of the transaction’s principal terms.
Both parties benefit when those terms are taken seriously.
Should You Sign an LOI Without an Attorney?
I generally recommend that both buyers and sellers have an attorney experienced in dental practice transactions review the LOI before signing it.
Although the document is usually shorter and less complicated than a purchase agreement, it can still establish important rights and obligations.
An experienced attorney can help identify ambiguous language, clarify contingencies, and ensure that the document accurately reflects the parties’ intentions.
Addressing those issues early is generally easier than resolving a disagreement after the transaction is already underway.
The Bottom Line
A Letter of Intent is an important step in buying or selling a dental practice.
It helps the buyer and seller establish the principal business terms before moving into the more detailed stages of financing, due diligence, and contract preparation.
A well-structured LOI can reduce misunderstandings, establish realistic expectations, and provide a clearer path toward closing.
But it isn’t a substitute for the definitive purchase agreements, and it shouldn’t be signed without understanding its provisions.
The goal is to establish a clear foundation for a transaction that works for both parties.
Considering Buying or Selling a Dental Practice?
American Practice Consultants has been helping dentists navigate practice transitions since 1985.
Whether you’re preparing to sell your practice or exploring an ownership opportunity in New Jersey or Eastern Pennsylvania, understanding the steps involved in a transaction can help you make more informed decisions.
Our team works with buyers and sellers throughout the transition process, helping coordinate the business aspects of the transaction alongside experienced attorneys, lenders, and other advisors.
Contact American Practice Consultants to discuss your practice transition goals.