Letter of Intent Template for Acquiring a Sober Living Home

Parties and Transaction Overview

Identifies the buyer and seller, the legal entity being acquired, the specific properties included, and the type of transaction structure. In sober living acquisitions, it is essential to clarify upfront whether this is an asset purchase, an entity purchase, or a hybrid involving separate real estate and operating business components.

💡 Sellers who own both the real estate and the operating business frequently want to sell them together, while buyers — especially SBA borrowers — may need to separate them for financing purposes. Agree on the structure early. If the property is leased, confirm that the landlord will consent to assignment or negotiate a new lease as a condition of closing. Entity purchases are rare in this space due to liability concerns around past resident incidents or regulatory violations.

Purchase Price and Valuation Basis

States the proposed purchase price, how it was calculated, and what assets or liabilities are included. Sober living homes typically trade at 2.5x–4.5x Seller's Discretionary Earnings (SDE) or EBITDA. The valuation must account for real estate value separately from the operating business goodwill, certifications, referral network, and staffing infrastructure.

💡 Sellers with informal books will struggle to substantiate SDE, which gives buyers leverage but also creates deal risk. Push for accrual-based financials and a quality of earnings review before finalizing price. If the seller relies on scholarship residents or informal arrangements that inflate occupancy, adjust the multiple accordingly. Real estate in residential zones with sober living approval is increasingly scarce and may warrant a premium above market comps.

Deal Structure and Payment Terms

Specifies how the purchase price will be funded, including the down payment, SBA loan proceeds, seller financing, and any earn-out component. Sober living acquisitions are SBA 7(a) eligible when structured correctly, which typically means the business must have documented revenue, clean licensing, and at least two years of operating history.

💡 Seller financing in the 15–25% range signals seller confidence to SBA lenders and is often required for approval. Sellers resistant to carrying any paper should be asked why — it may indicate concern about post-close performance. Earn-outs are common in sober living to bridge the gap between what sellers claim and what buyers can verify, but they require detailed definitions of occupancy rate, revenue calculation methodology, and dispute resolution mechanisms to be enforceable.

Earn-Out Terms and Occupancy Thresholds

Defines the conditions under which the seller receives additional compensation after closing, typically tied to maintaining occupancy rates and revenue levels during a transition period. This section is especially critical in sober living given the volatility of resident populations and the relationship-dependent nature of referral pipelines.

💡 Define 'occupancy' with precision — is it based on paid beds, filled beds, or licensed capacity? Sellers will want the broadest definition; buyers should use paying residents with signed resident agreements. Include a seller protection clause preventing buyers from making operational changes (e.g., cutting referral relationships or raising resident fees dramatically) that would foreseeably impair occupancy during the earn-out window. Consider a floor payment that vests regardless of performance if Seller completes full transition obligations.

Licensing, Certification, and Regulatory Contingencies

Establishes that the transaction is conditioned on confirmation that all required state licenses, NARR or state certifications, and zoning approvals are current, transferable, and free of material violations. This is the single most important contingency in any sober living acquisition.

💡 Licensing transferability varies dramatically by state — in some states the license terminates at change of ownership and Buyer must apply fresh, which can create a revenue gap of 60–120 days. Budget for this scenario and consider a delayed close or interim management agreement. NARR certification is not automatically transferable and requires a re-inspection in most cases. Zoning approval for sober living homes is a growing flashpoint in many municipalities; confirm there are no pending ordinance changes that could affect operating rights.

Due Diligence Period and Access

Defines the length of the due diligence period, what information the seller must provide, and the buyer's right to inspect the property, interview staff, and review resident and financial records within HIPAA and confidentiality constraints.

💡 45–60 days is appropriate for a single-location sober living home; multi-property acquisitions may require 75–90 days. Sellers are often reluctant to share incident reports or allow staff interviews for fear of destabilizing the team. Frame staff interviews as part of retention planning, not evaluation. If the seller cannot produce clean P&L statements separated from personal expenses, require a bookkeeper-assisted recast before the LOI is signed rather than discovering the problem mid-diligence.

Exclusivity and No-Shop Period

Commits the seller to negotiate exclusively with the buyer for a defined period while due diligence and financing are arranged, protecting the buyer's investment of time and money in the process.

💡 60 days is the standard for sober living deals requiring SBA financing; sellers with multiple interested buyers may push for 30–45 days. If the seller insists on a shorter window, consider whether you can accelerate your SBA pre-approval or use bridge financing to demonstrate commitment. Sellers who resist exclusivity entirely are often still shopping the deal — a significant red flag. Ensure the exclusivity clause is explicitly labeled as binding even though the rest of the LOI is non-binding.

Seller Transition and Non-Compete

Defines the seller's obligation to support operational continuity after closing and restricts them from opening or operating a competing recovery residence in the same market for a defined period.

💡 Transition support is especially critical in sober living because the referral network is built on personal relationships — counselors and case managers refer to people they trust, not entities. A seller who is burned out may resist a long transition commitment; negotiate a shorter mandatory period with optional extensions at a consulting rate. Non-competes in the recovery housing space are increasingly scrutinized; keep the geographic radius reasonable (20–30 miles in urban markets, county-level in rural) and the duration to 2–3 years to maximize enforceability.

Confidentiality

Obligates both parties to keep the terms of the LOI, the existence of the transaction, and all shared information confidential during and after the due diligence process, protecting residents, staff, and business relationships.

💡 Confidentiality is especially sensitive in sober living because residents in early recovery are a vulnerable population whose trust in the home's stability is therapeutically significant. Premature disclosure of a sale can trigger resident departures and referral source hesitation. Agree on a communication timeline and script as part of the transition plan. Staff confidentiality is equally important — house managers who learn of a pending sale may begin job searching, creating operational risk at a fragile moment.

Conditions to Closing

Lists the material conditions that must be satisfied before the transaction can close, protecting both parties from being obligated to complete a deal that cannot be properly consummated.

💡 The 'no material adverse change' clause is particularly important in sober living given the possibility of a sudden occupancy drop, a regulatory complaint, or a high-profile resident incident between LOI signing and closing. Define what constitutes a material adverse change — a drop in occupancy below [65%] for [30+] consecutive days, or a new regulatory violation, would qualify. Sellers will push back on broad MAC clauses; negotiate a specific threshold rather than a subjective standard.