How an LOI is structured for a large real asset transaction

An LOI for a large Indian real asset transaction functions as a negotiated exclusivity agreement that binds both parties to specific timelines, earnest money mechanics, and due diligence parameters while leaving final price and structure subject to confirmatory findings. According to Knight Frank India's H1 2025 Capital Markets Report, transactions above ₹100 Cr that proceeded with structured LOIs closed at a 73 percent rate, compared to 41 percent for deals initiated through non-binding term sheets alone. The distinction matters because Indian real asset transactions involve layered regulatory clearances, from RERA registration to DTCP approvals to mutation records, that require dedicated seller cooperation during diligence. An LOI that fails to secure this cooperation contractually creates optionality for the seller to entertain parallel bids.

The binding versus non-binding framework

Indian courts have consistently upheld that specific clauses within an LOI can be binding even when the document states it is 'subject to definitive agreement.' The Supreme Court's 2019 ruling in Nirmala Anand v. Advent Corporation established that exclusivity provisions, confidentiality obligations, and earnest money forfeiture terms carry independent enforceability. For capital allocators, this means the LOI must explicitly designate which sections are binding and which remain indicative. Standard practice in transactions above ₹50 Cr, according to Cushman & Wakefield's India Investment Guide 2025, involves three binding elements: a 60 to 90 day exclusivity period preventing the seller from negotiating with other parties, a confidentiality clause covering transaction details and diligence findings, and an earnest money mechanism specifying deposit amount, escrow arrangements, and conditions for forfeiture or return. The indicative sections typically cover transaction value, payment structure, and closing timeline, all subject to due diligence outcomes.

Earnest money mechanics and forfeiture triggers

Earnest money in Indian real asset LOIs serves a dual function: it demonstrates buyer seriousness and compensates the seller for exclusivity. CBRE India's Real Assets Transaction Survey for 2025 indicates that earnest money deposits for transactions between ₹50 Cr and ₹500 Cr range from 2 to 5 percent of indicative transaction value, with higher percentages applied to distressed assets or assets with multiple interested parties. The LOI must specify three scenarios: conditions under which earnest money is refundable to the buyer, conditions under which it is forfeited to the seller, and conditions under which it is credited toward the final purchase price. Refund triggers typically include material title defects discovered during diligence, failure to obtain required regulatory approvals, or seller misrepresentation. Forfeiture triggers include buyer withdrawal without cause or failure to close within the stipulated timeline despite clear title. Ambiguity in these clauses is the primary source of LOI-stage disputes. JLL India's 2025 analysis of stalled transactions found that 34 percent of deals that collapsed between LOI and definitive agreement involved earnest money disputes arising from poorly drafted forfeiture language.

Due diligence scope and condition precedent structure

The LOI must enumerate which diligence findings constitute conditions precedent to the definitive agreement. For land transactions in Haryana, Gujarat, or Tamil Nadu, this includes verification of DTCP layout approvals, conversion status from agricultural to non-agricultural use, and absence of encumbrances in the Sub-Registrar records. For RERA-registered projects, the LOI should reference the specific RERA registration number and require verification of compliance status through the state RERA portal. Anarock's Capital Markets Review for Q2 2025 notes that transactions involving licensed land in the NCR region increasingly include environmental clearance verification as a condition precedent, given the enhanced scrutiny from the National Green Tribunal on projects within the NCR boundaries. The LOI should also specify the documentation the seller must provide during diligence: original title deeds, chain of ownership documents, mutation records, property tax receipts, and any litigation disclosures. Seller cooperation obligations, including access to the property for physical inspection and introductions to relevant municipal authorities, should be time-bound within the exclusivity period.

What this means for capital allocators

For family offices entering large real asset transactions in India, the LOI is the document where negotiating leverage is established. Once the definitive agreement stage begins, legal costs escalate and structural terms become harder to modify. AIS structures LOIs for mandates across hospital land leases, hotel acquisitions, and licensed development land with explicit attention to the binding and non-binding distinction, earnest money forfeiture triggers tied to specific diligence findings, and condition precedent language that references actual regulatory requirements rather than generic 'satisfactory diligence' formulations. The difference between a closed transaction and a collapsed one often traces back to whether the LOI created genuine exclusivity or merely signalled interest.