Letters of Intent: Preliminary Agreements Before the Deal

What Is a Letter of Intent?

A letter of intent (LOI) is a document that outlines the preliminary terms of a proposed transaction before the parties negotiate a final, binding agreement. It signals serious interest and establishes a framework for negotiations.

LOIs are used across many deal types — business acquisitions, real estate purchases, commercial leases, joint ventures, and employment offers.

What an LOI Typically Includes

• Description of the transaction — What is being bought, sold, leased, or undertaken.
• Key commercial terms — Price, payment structure, and major conditions.
• Due diligence period — Time allowed for investigating the deal.
• Exclusivity / no-shop clause — Agreement not to negotiate with other parties for a specified period.
• Confidentiality obligations — Both parties agree to keep deal discussions private.
• Conditions to closing — Major hurdles that must be cleared.
• Timeline — Anticipated schedule for completing the transaction.

Binding vs. Non-Binding Provisions

Most LOIs are a hybrid — partly binding, partly not:

• Non-binding — The core business terms (price, structure) are typically stated as non-binding, meaning neither party is obligated to close the deal.
• Binding — Confidentiality, exclusivity, governing law, and expense provisions are usually binding regardless of whether the deal closes.

The LOI should clearly label which sections are binding. If it does not, disputes can arise about whether the LOI itself constitutes an enforceable agreement.

LOI vs. Term Sheet vs. MOU

These documents serve similar purposes with minor stylistic differences:

• LOI — Formatted as a letter; common in real estate and M&A.
• Term sheet — Bulleted or tabular format; common in venture capital.
• MOU (Memorandum of Understanding) — Often used in government, nonprofit, and international contexts.

Risks of Signing an LOI

• You may be locked into an exclusivity period that prevents exploring other offers
• Poorly worded LOIs could be interpreted as binding contracts
• Good faith negotiation obligations may be implied, limiting your ability to walk away

When to Consult a Lawyer

Always consider having an attorney review an LOI before signing. What appears non-binding may contain enforceable provisions, and the terms you agree to now shape the final deal.

This article is for informational purposes only and does not constitute legal advice. Consult a licensed attorney for guidance specific to your situation.