Letter of Intent – Commercial (UAE)

A Commercial Letter of Intent in the United Arab Emirates is a document — typically a letter issued by one party to another — that records the issuing party's intention to proceed with a defined commercial transaction and sets out the key terms on which that transaction is expected to proceed, subject to completion of due diligence and execution of a formal agreement. The Letter of Intent (LOI) is governed by the UAE Civil Code (Federal Law No. 5 of 1985), which treats it as a contract if the essential elements of offer, acceptance, and agreed terms are present under Article 125, regardless of whether the document is labelled a letter of intent, heads of terms, or a term sheet. This means that a poorly drafted LOI may inadvertently create a binding obligation to complete the transaction even if that was not the parties' intent.

The distinction between binding and non-binding provisions is the most important feature of a UAE commercial LOI. UAE legal practice — confirmed by decisions of the Dubai Courts and the Abu Dhabi Judicial Department — recognises that a document can be partially binding: typically, the exclusivity obligation and the confidentiality provisions are expressed as binding, while the description of the transaction, the indicative price, and the conditions to completion are expressed as non-binding expressions of intent subject to formal documentation. The binding and non-binding split must be stated explicitly in the document, because the Civil Code does not automatically treat documents titled letter of intent as non-binding.

Commercial LOIs are used across a wide range of UAE transactions. In M&A transactions — particularly acquisitions of mainland LLC shares, transfers of free-zone entity licences, or investments in technology startups — the LOI marks the point at which the buyer commits to an exclusivity period and the seller agrees to cooperate in due diligence, without either party being bound to complete the transaction. The Ministry of Economy, the Dubai Land Department (DLD), and free-zone authorities often see the LOI as the first formal step in a transaction record. The Commercial Companies Law (Federal Decree-Law No. 32 of 2021) governs the corporate authority to sign the LOI, and the signatory must hold a board resolution or valid power of attorney.

For joint venture formations, the LOI precedes the joint venture agreement and records the parties' agreement on the broad structure — the proposed ownership split, the governance model, and the parties' respective contributions — while leaving the detail to be negotiated. For major supply arrangements, a buyer may issue an LOI to a supplier to secure supply capacity while the formal supply agreement is being finalised. In all cases, the LOI should clearly state what happens if the parties do not proceed to the definitive agreement — typically, the LOI lapses, each party bears its own costs, and the confidentiality obligation continues to protect due diligence materials.

The Personal Data Protection Law (Federal Decree-Law No. 45 of 2021), administered by the UAE Data Office, applies when due diligence involves the exchange of employee, customer, or counterparty personal data. The LOI's confidentiality clause should address PDPL compliance. For DIFC and ADGM transactions, the relevant free-zone law applies instead of UAE federal law, and the DIFC Courts and ADGM Courts adjudicate disputes. The Federal Arbitration Law (Federal Law No. 6 of 2018) governs arbitration proceedings, and UAE arbitral awards are enforceable in more than 170 jurisdictions under the New York Convention.

A Commercial Letter of Intent in the United Arab Emirates is needed whenever parties wish to record their intent to proceed with a significant transaction, commit to an exclusivity period for negotiations, and protect due diligence materials — all before the cost and complexity of a formal agreement is justified.

Mergers and acquisitions involving UAE mainland LLCs or free-zone companies use LOIs as the standard first step in the deal process. The LOI gives the buyer a defined period — typically 30 to 60 days — to examine the target's financial records, customer contracts, licences, and corporate structure, while the seller is prevented from inviting competing bids. M&A advisers at UAE law firms routinely prepare LOIs before commencing due diligence, and the Ministry of Economy may require a copy of the LOI as part of an application to change shareholding.

Real estate transactions — particularly the purchase of commercial or mixed-use properties registered with the Dubai Land Department or Abu Dhabi's Department of Municipalities and Transport, and off-plan investments in RERA-regulated developments — use LOIs to record the agreed price, the conditions precedent (title search, DLD registration checks, release of mortgages), and the exclusivity period before the formal sale and purchase agreement is prepared.

Joint venture formation between a UAE-based company and a foreign partner commonly begins with an LOI that records the proposed ownership split, the parties' contributions of capital and expertise, the planned free-zone or mainland registration structure, and the principal commercial terms, before a full joint venture agreement is negotiated.

Major supply and services contracts between a corporate buyer and a UAE supplier or service provider use LOIs to lock in key commercial terms — price, volume, delivery schedule, and payment terms — while the detailed agreement is reviewed and negotiated. This is common in the construction and engineering sector, where a developer needs to secure a specialist contractor's availability before the main contract is finalised.

Government and semi-government entities in the UAE — including Abu Dhabi entities regulated by the Abu Dhabi Department of Finance and Dubai entities overseen by the Dubai Department of Finance — may issue LOIs as part of the procurement process to indicate intent to award, subject to formal approvals and execution of the contract.

A UAE Commercial Letter of Intent that achieves its commercial purpose and protects both parties must contain the following core elements. The forms-legal.com UAE Letter of Intent template addresses each component in a structure aligned with the UAE Civil Code and commercial practice.

Party identification must state the full legal name, trade licence number or Emirates ID, and registered address of the issuing party and the recipient. The signatory must have corporate authority under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021).

Transaction description must define the commercial transaction with enough specificity that both parties understand what is being contemplated: the type of transaction (share acquisition, asset purchase, joint venture, supply arrangement), the subject matter, and the primary commercial rationale. The description should be precise enough to identify the deal without being so detailed that it inadvertently creates a binding obligation to complete.

Indicative price or consideration must state the intended financial terms in AED, clearly marked as indicative and subject to confirmation following due diligence and formal documentation. Where a price adjustment mechanism is anticipated — for example, a net-asset-value adjustment in an M&A deal — the mechanism should be described in general terms.

Key conditions to completion must list the principal events that must occur before the formal agreement can be signed: regulatory approvals from the Ministry of Economy or relevant Department of Economic Development, satisfactory due diligence, shareholder or board approval, and release of any security interests. These conditions are non-binding in the LOI but signal the transaction's roadmap.

Exclusivity must state the period during which the recipient agrees not to negotiate with competing parties regarding the same transaction, the date from which it runs, and the consequences of breach. This is a binding obligation and the most commercially important clause in the LOI.

Confidentiality must protect all due diligence materials, the existence of the transaction, and any personal data exchanged, with obligations surviving lapse of the LOI for a specified period and complying with the Personal Data Protection Law (Federal Decree-Law No. 45 of 2021).

Due diligence access must commit the recipient to grant reasonable access to its records and management during the exclusivity period.

Binding and non-binding split must be stated explicitly, specifying which provisions (exclusivity, confidentiality, governing law) are binding and which are non-binding expressions of intent. This is the most critical drafting point under UAE law.

Governing law and dispute resolution must identify UAE law as the governing law and the forum — Dubai Courts, Abu Dhabi Courts, DIAC arbitration, or DIFC Courts — for enforcement of the binding provisions.

Completing a UAE Commercial Letter of Intent requires the parties to agree on the key commercial terms before the document is issued, and to make deliberate choices about which provisions are binding.

Start with party details. Enter the full legal name of the issuer and the recipient as they appear on each party's trade licence or Emirates ID. Record the licence number and registered address. Enter the date in DD/MM/YYYY format. Confirm the signatory has corporate authority — a board resolution or power of attorney is required for corporate parties under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021).

Describe the proposed transaction with enough specificity that the parties and any court can identify what is being contemplated, without creating a detailed binding commitment. For an M&A transaction, state the type of acquisition (share or asset), the percentage being acquired, and the indicative consideration in AED. For a joint venture, state the proposed ownership split and nature of the venture.

State the indicative price or consideration in AED, clearly marked as subject to due diligence and formal documentation.

List the key conditions to completion: due diligence outcome, regulatory approvals from the Ministry of Economy or relevant authority, board and shareholder consents, and release of security. These conditions are non-binding at this stage.

Select the binding provisions. For most commercial LOIs, confidentiality and exclusivity only is the appropriate choice, keeping the commercial terms flexible while protecting both parties' interests.

State the exclusivity period in days from the date of the letter — 45 days is a common benchmark for UAE commercial transactions. The exclusivity is legally binding.

Select the governing forum. Both parties should sign: the issuer signs below the closing, and the recipient countersigns to acknowledge the binding provisions. Electronic signatures are valid under the Electronic Transactions and Trust Services Law (Federal Decree-Law No. 46 of 2021).

A Commercial Letter of Intent in the United Arab Emirates is subject to the UAE Civil Code (Federal Law No. 5 of 1985). Article 125 treats any agreement that meets the criteria of offer, acceptance, and essential terms as a contract, so the LOI must clearly distinguish binding from non-binding provisions to prevent the non-binding terms from becoming enforceable. Article 246 imposes good faith in performance, and pre-contractual bad faith — using the LOI to extract information without genuine intent to proceed — may give rise to culpa in contrahendo liability under the Civil Code's general principles.

The Commercial Companies Law (Federal Decree-Law No. 32 of 2021) governs corporate authority for both parties. For transactions involving regulated entities, additional approvals are required: Central Bank of the UAE for banks and insurance companies, Securities and Commodities Authority (SCA) for investment firms, and the Ministry of Economy for transactions exceeding the merger notification thresholds under the Federal Competition Law (Federal Decree-Law No. 36 of 2023).

Confidentiality obligations in the LOI must comply with the Personal Data Protection Law (Federal Decree-Law No. 45 of 2021) where personal data is exchanged during due diligence. VAT under Federal Decree-Law No. 8 of 2017 and Corporate Tax under Federal Decree-Law No. 47 of 2022 affect the financial analysis of the transaction and should be addressed in the formal agreement rather than the LOI. Electronic execution is valid under the Electronic Transactions and Trust Services Law (Federal Decree-Law No. 46 of 2021). Arbitration of disputes from binding provisions is governed by the Federal Arbitration Law (Federal Law No. 6 of 2018), and awards are internationally enforceable under the New York Convention.

UAE commercial letters of intent frequently contain drafting errors that either create unintended binding obligations or fail to protect the parties during the pre-deal phase.

1. No clear binding and non-binding split. Failing to state explicitly which provisions are binding and which are not is the most serious error. Under the UAE Civil Code (Federal Law No. 5 of 1985), a document containing agreed price and terms may be treated as a binding preliminary contract by the Dubai Courts regardless of the title Letter of Intent.

2. Exclusivity period too vague. An exclusivity clause that says the recipient will not negotiate with others without specifying the duration, the subject matter, and the territory is difficult to enforce. State the period in days and the specific transaction it covers.

3. No due diligence access obligation. An LOI that commits the issuing party to an exclusivity period but does not require the recipient to provide due diligence access leaves the issuing party unable to progress. The recipient's cooperation obligation should be express.

4. No lapse clause. Failing to state what happens if no definitive agreement is executed by the end of the exclusivity period creates uncertainty. State explicitly that the LOI lapses and the parties have no further obligations (except surviving confidentiality) if the exclusivity period expires without execution of a formal agreement.

5. Ignoring regulatory approvals. For transactions subject to Ministry of Economy approval, DED consent, or free-zone authority registration, failing to list these as conditions to completion creates false confidence that the deal can be completed quickly. Identify all required approvals in the conditions.

6. Personal data not addressed. Due diligence routinely involves the exchange of employee, customer, and counterparty personal data. An LOI without a PDPL-compliant confidentiality clause exposes both parties to regulatory risk under Federal Decree-Law No. 45 of 2021.

7. Signing without authority. A signatory without board authorisation or a power of attorney under the Commercial Companies Law (Federal Decree-Law No. 32 of 2021) may not bind the entity, which creates uncertainty about whether the binding provisions — particularly exclusivity — are enforceable against the company.