Letter of intent
A letter of intent (LOI or LoI, or Letter of Intent) is a document outlining the understanding between two or more parties which they intend to formalize in a legally binding agreement. The concept is similar to a heads of agreement, term sheet or memorandum of understanding. Merger and acquisition agreements,[1] joint venture agreements, real property lease agreements and several other categories of agreements often make use of a letter of intent.
For the "letter of intent" in U.S. college sports, see National Letter of Intent.
The capitalized form Letter of Intent may be used in legal writing, but only when referring to a specific document under discussion.
LOIs resemble short, written contracts, often in tabular form. They are not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as those governing non-disclosure,[2] governing law, exclusivity or a covenant to negotiate in good faith.[1] A LOI may sometimes be interpreted by a court of law as binding the parties to it if it too-closely resembles a formal contract and does not contain a clear disclaimer.[3]
A letter of intent may be presented by one party to another party and subsequently negotiated before execution (or signature). If carefully negotiated, a LOI may serve to protect both parties to a transaction. For example, a seller of a business may incorporate what is known as a non-solicitation provision, which would restrict the buyer's ability to hire an employee of the seller's business should the two parties not be able to close the transaction. On the other hand, a LOI may protect the buyer of a business by expressly conditioning its obligation to complete the transaction if it is unable to secure financing for the transaction.[4]
In the UK construction industry, it has been noted that "a significant element" within the industry appears to be "content to have their commercial and legal relationships defined on the basis of a letter of intent rather than by clear and definite contracts", as a consequence of which problems "often arise" in relation to liability.[5] Ampleforth Abbey Trust successfully sued project management business Turner and Townsend in 2012 when the latter engaged a construction company to build residential accommodation for the Abbey's students, relying on a series of letters of intent instead of a formal contract. The Abbey's position was undermined in the absence of a contract, and Turner and Townsend had breached their duty of care in leaving the trust exposed without contractual protection.[6]