A letter of intent is a document outlining an agreement between two or more parties before
the agreement is finalized.
The concept is similar to a heads of agreement.
Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements,
Lease Agreements, and overall all Agreements which aim at closing a financially large deal.
LOIs resemble written contracts, but are usually not binding on the parties in their entirety.
Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements,
a covenant to negotiate in good faith, or a "stand-still" or "no-shop" provision promising
exclusive rights to negotiate.
An LOI may sometimes be interpreted by a court of law as binding the parties to it, if it
too-closely resembles a formal contract.
A letter of intent may be presented by one party to another party and subsequently negotiated
before execution If carefully negotiated, a LOI may serve to protect both parties to
a transaction.
For example, a seller of a business may incorporate what's known as a 'no solicitation' provision
which would prevent the buyer from subsequently hiring 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 imposing a condition to complete
the transaction on their part if financing the deal is not obtained.
The most common purposes of an LOI are: To clarify the key points of a complex transaction
for the convenience of the parties To declare officially that the parties are
currently negotiating, as in a merger or joint venture proposal
To provide safeguards in case a deal collapses during negotiation
To verify certain issues regarding payments done for someone else e.g. credit card payments
An LOI may also be referred to as a term sheet or discussion sheet.
The terms reflect different styles, but usually do not indicate any difference under law.
A contract, by contrast, is a legal document governed by contract law.
Furthermore, there is also a specific difference between a letter of intent and a memorandum
of understanding; an LOI outlines the intent of one party toward another with regard to
an agreement, and may only be signed by the party expressing that intent, whereas an MOU
must be signed by all parties to be a valid outline of an agreement.
Nevertheless, LOIs are fairly often incorrectly referred to as MOUs and vice versa.
Specific examples
In academia, a letter of intent is part of the application process, in which it is also
known as a statement of purpose or application essay.
In education in the United States, letters of intent are also frequently reached between
high school senior athletes and colleges/universities, for the reservation of athletic scholarships
for the athletes upon graduation from high school.
School administrators in secondary education often require a letter of intent before approving
the formation of a student club.
In real estate, in cases where the real property in question is not listed on a multiple listing
service, there may not be an easy way to notify the owner of the property and other interested
parties of intent to purchase.
Often it is necessary to officially begin the process of a purchase, and allow all peripheral
interested parties to begin any other processes, with a letter of intent.
For example, a multi-million dollar loan for a commercial property may require a letter
of intent before a financial institution will allow personnel to spend time working on said
loan necessary for the completion of the sale.same may be followed at the time of purchase by
any company.
In the solicitation of government grants, a letter of intent is highly encouraged but
it is not required or binding, and does not enter into the review of a subsequent application.
The information that it contains allows agency staff to estimate the potential workload and
plan the review.
See also Letter of comfort
References