The Letter of Intent and Purchase Agreement
The transition from verbal agreement to binding contract is where laundromat deals either solidify or fall apart. Two documents govern this transition: the letter of intent (LOI), which outlines the proposed terms and demonstrates seriousness, and the purchase agreement (also called the asset purchase agreement or APA), which creates the legally binding framework for the transaction. Understanding both documents—what they should contain, how they protect the buyer, and where the common pitfalls lie—is essential for navigating the path from handshake to closing.
The letter of intent
The LOI is typically a two-to-four-page document that establishes the key terms of the proposed transaction. It is usually non-binding—meaning neither party is legally obligated to complete the deal—with the exception of specific provisions that are binding, such as exclusivity and confidentiality.
A well-drafted LOI includes the purchase price and how it was determined, the deal structure (asset purchase or entity purchase—asset purchase is standard for laundromats and preferred by buyers for tax and liability reasons), the proposed allocation of purchase price across asset categories, the financing plan (bank loan, seller financing, all cash), an earnest money deposit (typically 1–3% of the purchase price, held in escrow), a due diligence period (30–60 days during which the buyer can inspect the business and terminate without penalty), key contingencies (financing approval, satisfactory due diligence, lease assignment, landlord consent), an exclusivity period during which the seller will not negotiate with other buyers, a proposed closing date, and any specific conditions or agreements (training period, covenant not to compete, inventory treatment).
The LOI serves a gatekeeping function. It forces both parties to articulate the deal terms before investing in legal documentation. If the buyer and seller cannot agree on the fundamental terms in the LOI, they will not agree on the purchase agreement, and the time and money spent on legal drafting will be wasted.
The purchase agreement
The purchase agreement is the binding contract that governs the sale. It is substantially more detailed than the LOI and should be drafted or reviewed by the buyer's attorney. For laundromat transactions, the purchase agreement typically runs 15–30 pages plus schedules and exhibits.
Assets being purchased. The agreement should itemize every asset included in the sale: equipment (with a complete list as an exhibit), leasehold improvements, customer lists, business name and branding, phone numbers and web presence, supplies and inventory, vendor and service contracts, licenses and permits (to the extent transferable), and goodwill. Assets explicitly excluded from the sale—personal property, cash on hand, accounts receivable—should also be listed to prevent disputes.
Purchase price and payment terms. The total price, the payment structure (how much at closing, how much in seller financing, earnout terms if applicable), and the allocation of purchase price across asset categories for tax purposes. The allocation should be documented as a schedule to the agreement and is binding on both parties for tax reporting purposes.
Representations and warranties. These are statements of fact that each party makes about themselves, the business, and the transaction. The seller typically represents that the financial statements are accurate, that there are no undisclosed liabilities, that the equipment is in working condition, that the business complies with all applicable laws, that there is no pending or threatened litigation, and that the seller has the authority to sell the business. The buyer typically represents that they have the financial capacity to close and that they have not been involved in any fraud or legal issues that would affect the transaction.
Representations and warranties matter because they survive closing—if a representation turns out to be false, the affected party has legal recourse. The scope and specificity of the representations are among the most negotiated provisions in the purchase agreement.
Contingencies. Conditions that must be satisfied before the buyer is obligated to close. Standard contingencies include satisfactory completion of due diligence, financing approval, lease assignment or landlord consent, no material adverse change in the business between signing and closing, and receipt of all necessary governmental approvals and permits. The buyer should insist on contingencies that provide genuine off-ramps if problems emerge, rather than waiving contingencies to appear aggressive.
Indemnification. Provisions that allocate liability for problems that arise after closing. The seller typically indemnifies the buyer against losses arising from breaches of representations and warranties, undisclosed liabilities, and pre-closing tax obligations. The indemnification provisions should include a survival period (how long after closing the buyer can make claims—typically 12–24 months), a cap on the seller's total indemnification liability (often 10–25% of the purchase price), and a deductible or basket below which claims are not reimbursed.
Closing conditions and timeline. The specific requirements that must be met before closing occurs, the closing date, and the procedures for the day of closing itself.
The escrow process
The purchase agreement typically requires an earnest money deposit that is held in escrow by a neutral third party—usually the buyer's attorney, the seller's attorney, or a title company. The deposit demonstrates the buyer's good faith commitment and provides the seller with compensation if the buyer breaches the agreement.
The escrow instructions should clearly specify the conditions under which the deposit is refundable (typically, if the buyer terminates during the due diligence period or if a contingency is not satisfied), the conditions under which the deposit is released to the seller (typically, if the buyer breaches the agreement or fails to close without a valid contingency), and the process for disbursement at closing (the deposit is credited against the purchase price).
Common mistakes in purchase agreements
Several provisions that protect the buyer are commonly omitted or weakened in laundromat purchase agreements. A non-compete covenant preventing the seller from opening or operating a competing laundromat within a defined radius (typically 5–15 miles) for a defined period (typically 3–5 years) is essential—without it, the seller can open a new store across the street. A training and transition provision requiring the seller to work with the buyer for 2–4 weeks after closing to transfer operational knowledge, customer relationships, and vendor contacts. A proration agreement specifying how rent, utilities, insurance premiums, and other recurring costs are divided between buyer and seller as of the closing date. A holdback provision retaining a portion of the purchase price (typically 5–10%) in escrow for 60–90 days after closing to cover any undisclosed liabilities or misrepresentations discovered during the transition.
Each of these provisions should be discussed with the buyer's attorney and included in the purchase agreement before signing.
Sources & Further Reading
- American Bar Association — Small business purchase agreement guidelines
- Laundromat Resource — LOI and purchase agreement templates
- Coin Laundry Association — Transaction documentation best practices
- BizBuySell — Standard terms in small business purchase agreements
- Eastern Funding — Lender requirements for purchase agreement provisions