During the LOI drafting, the buyer slipped in a clause requiring us to pay for all third-party transfer fees and environmental studies, which they claim is standard for a deal of our size. How do we negotiate the allocation of transaction expenses during the LOI phase to prevent these closing costs from eroding our net proceeds?

Question

Tyler Smith · Accepted Answer

Buyers often use standard-sounding language in the letter of intent to quietly shift transaction expenses onto the seller. If you sign without clarifying these terms, you will find yourself paying for their due diligence, environmental reports, and transfer taxes at the closing table.

You must establish clear boundaries during the LOI phase. Insist on a mutual allocation of expenses. The general rule should be that each party pays for its own legal, accounting, and advisory fees. For joint expenses like environmental assessments, regulatory filings, or local transfer taxes, negotiate a fifty-fifty split or push them entirely onto the buyer as a cost of their acquisition.

Use your internal financial metrics to model how these expenses impact your net proceeds. Bring these calculations to your leadership team meetings so you can discuss the impact on your cash-free, debt-free target. If the buyer argues that these studies are required by their senior lender, point out that the lender is their partner, not yours.

Make your agreement to these terms contingent on a tight timeline. If the buyer wants you to cooperate with extensive third-party reports, require them to pay for those reports if they decide to walk away for any reason other than a material breach. This keeps the buyer honest and prevents them from running up costs on your dime.