Six LOI Terms Management Company Owners Shouldn’t Ignore

Congrats! A buyer has expressed interest in investing in your management company. What's next? The first serious step is usually a non-binding Letter of Intent, or LOI. While it’s not the final contract, it lays the groundwork for everything that follows. The LOI is where many sellers unknowingly give away leverage by agreeing to vague or one-sided terms that only get worse in the final agreement. Here are six key LOI terms you should read carefully, negotiate if needed, and never gloss over.

1. Expense Treatment: Avoid Surprise Fees by Clarifying Who Pays for What

One of the most common areas where sellers get caught off guard is in deal expenses. Buyers will often leave this part of the LOI vague or omit it entirely. Later in the process, they may present legal bills, diligence fees, or other transaction costs, expecting you to pay part of them. This tactic is often brushed off as “industry standard,” especially by financial buyers, but in practice it can mean tens of thousands of dollars in unexpected charges deducted from your proceeds. You can head this off early by insisting that the LOI clearly state that each side will bear its own expenses. It’s a simple clause, but one that can prevent unnecessary friction or worse, a fight at the closing table.

2. Basis of Valuation: Know What’s Behind the Number to Avoid Surprise Repricing

Buyers typically value management companies based on a multiple of EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization. While that approach is standard, sellers should focus less on the multiple itself and more on what EBITDA figure is actually being used. The problem arises when there’s a disconnect between your understanding of EBITDA and the buyer’s. If the LOI is based on your adjusted EBITDA but the buyer later challenges your add-backs or makes downward adjustments during diligence, they may try to lower the price or restructure the deal. This is known as “re-trading,” and it can catch sellers off guard if the original valuation basis wasn’t clearly defined. Understanding how the buyer calculated EBITDA, and what assumptions or adjustments were already baked into the valuation, gives you more leverage. It helps you recognize when proposed changes are legitimate versus opportunistic, and gives you a foundation to push back if the buyer tries to revise the terms after the fact. Getting alignment on EBITDA up front makes later conversations about price far less murky and much more defensible.

3. Equity and Debt Funding Sources: “Cash” Doesn’t Always Mean Cash

It’s common to see “all-cash deal” in LOIs, but sellers should not assume that means the buyer has cash on hand, ready to wire. Sometimes that cash is coming from a bank loan, outside investors, or a private equity fund that still needs internal approval. If the funding isn’t secured or comes with contingencies, you may be committing to an exclusive process with a buyer who cannot actually close the deal. A credible buyer should be able to explain where the money is coming from, whether it’s from their own balance sheet, a committed fund, or a lender. If they can’t provide that clarity in the LOI, it’s fair to ask whether they’re the right buyer.

4. Exclusivity Windows: Don’t Get Stuck in a One-Sided No-Shop Clause

Most LOIs include an exclusivity period, which is the timeframe during which you agree not to talk to other potential buyers. This is understandable, as buyers don’t want to invest time and money in due diligence while you’re still shopping the deal. But exclusivity can become a problem when it’s too long or too vague. Some buyers will ask for 90 days or more and then slow down diligence or attempt to renegotiate terms midway through the process. Meanwhile, you're locked out of conversations with other interested parties. A fair exclusivity window is 30 to 45 days, with any extensions tied to progress, such as delivery of a draft purchase agreement. You should also ensure the LOI allows you to walk away if deadlines aren’t met. Don’t give up control of your company’s future without a clear path forward.

5. Fees Charged by the Buyer: Hidden Costs That Come Later

While some buyers are purely strategic and focused on long-term ownership, many are institutional buyers, who often make money from fees in addition to business performance. These fees can include management fees for overseeing the business after the deal closes or deal fees for executing acquisitions under your company’s name. In some cases, those charges are billed to your business even if you’re still running it. Sellers should ask the buyer directly, “Do you plan to charge any ongoing fees to the business after closing?” If the answer is yes or if they avoid the question, that’s a sign you need to dig deeper and consider negotiating protections. Ideally, fee structures should be disclosed in the LOI or explicitly excluded unless agreed to in writing later.

6. Board Composition After Closing: Know Who Will Be in Charge

If you're staying on with the business after the sale, especially if you're keeping some ownership, it's important to understand how decisions will be made going forward. Board structure determines who has real authority. The LOI should outline how many board seats there will be and how they’ll be divided between you and the buyer. Without this clarity, you could find yourself outvoted on key decisions about strategy, hiring, or future acquisitions, even if you're still involved day-to-day. While board governance might seem like something that can wait, it’s worth addressing early. The LOI is your chance to make sure you’ll still have a seat at the table after the deal closes.

Getting the LOI right is critical, as it sets the tone and terms for the entire deal. By clarifying key items early, sellers can avoid surprises, protect their valuation, and stay in control of the process.

‍For more information on the HOA management industry, valuation metrics, or other questions, please contact contact@camadvisors.co or visit https://www.camadvisors.co/‍

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