Legal & IP
Definition
A letter of intent (LOI) is a document outlining the preliminary terms of a proposed transaction — typically a business acquisition, commercial lease, or partnership — before a formal binding agreement is signed. Most LOI provisions are non-binding, but certain provisions (exclusivity, confidentiality, expense allocation) are typically binding.
LOIs serve multiple functions: they signal serious intent, establish a negotiating framework, and create a roadmap for due diligence and definitive documentation. In M&A transactions, the LOI sets the purchase price, structure (asset vs. stock), earnout terms, exclusivity period (no-shop clause), and major conditions. In commercial real estate, the LOI establishes rent, lease term, tenant improvement allowances, and options before the full lease is drafted. The non-binding nature of most LOI terms is frequently misunderstood — courts have occasionally found LOIs to create binding obligations when they are sufficiently specific and the parties behaved as if a deal was struck. Clear disclaimer language ('this LOI is not binding except as to sections X, Y, Z') is essential. Exclusivity and no-shop clauses in LOIs are binding and prevent the seller from soliciting competing offers during the negotiation period — often 30–90 days.
Signing an LOI without legal review can inadvertently bind you to unfavorable terms or lock out competing offers at a critical negotiation stage. An attorney can review LOI terms, ensure non-binding provisions are properly disclaimed, negotiate exclusivity windows, and structure terms that protect your position as you move toward definitive documents.