Letter of Intent

What Is a Letter of Intent? A letter of intent (LOI), also called a memorandum of understanding (MOU) or term sheet, is a document that outlines the key terms and conditions of a proposed transaction or agreement before the parties enter into formal negotiations and draft a definitive contract. LOIs are commonly used in business acquisitions, real estate transactions, joint ventures, and employment negotiations. ## Key Characteristics - Generally expresses the parties' intention to negotiate in good faith - Outlines the principal terms of the proposed deal - May contain both binding and non-binding provisions - Typically includes an exclusivity (no-shop) period - Often includes binding confidentiality and non-solicitation clauses - Sets a timeline for completing due diligence and finalizing the agreement ## Binding vs. Non-Binding The critical question with any LOI is which provisions are binding and which are not. Most LOIs explicitly state that the substantive business terms are non-binding and subject to the execution of a definitive agreement. However, certain provisions are typically made binding, including confidentiality obligations, exclusivity periods, expense allocation, and governing law. Parties should clearly identify which sections are binding to avoid inadvertently creating enforceable obligations.