A letter of intent (LOI) is the bridge between a handshake and a contract: it records the key terms both sides believe they have agreed on, sets a timeline toward a definitive agreement, and lets everyone spend money on due diligence with confidence that the deal is real.
The most litigated question about LOIs is whether they accidentally became contracts. This template answers it explicitly: the deal terms are expressly non-binding, while exclusivity and confidentiality, if you include them, are expressly binding.
What an LOI accomplishes
- It flushes out disagreement early: writing the price and structure down reveals gaps a handshake hides
- It justifies spending on due diligence, inspections, and lawyers before the final contract
- It frames the definitive agreement: attorneys draft faster and cheaper from an agreed outline
- With an exclusivity clause, it takes the deal off the market while you invest in closing it
- Lenders and investors often want to see a signed LOI before engaging on financing
Binding or non-binding: say it explicitly
Courts have enforced sloppily drafted LOIs as full contracts, and have awarded damages when a party walked away from what looked like a done deal. The protection is drafting discipline: state that the commercial terms are non-binding expressions of intent, and separately state which housekeeping provisions do bind, typically exclusivity, confidentiality, and each side paying its own costs. Avoid language of commitment (agrees to sell, shall purchase) in the deal description; this template uses intent language throughout.
Good faith can still bind you
Even under a non-binding LOI, some states impose a duty to negotiate in good faith once you say you will. Walking away for a reason contradicting the LOI, or using it purely to freeze a competitor, can create liability. Sign an LOI when your intent is genuine.
From LOI to definitive agreement
After signing, the typical sequence is due diligence (books, contracts, title, inspections), negotiation of the definitive agreement using the LOI as the term sheet, then signing and closing. Expect terms to move where diligence reveals surprises: the LOI price is an anchor, not a cage. If the deal dies, the binding clauses do their work: confidentiality survives, exclusivity expires on its date, and each side absorbs its own costs. Keep the signed LOI: it documents what both sides understood if any dispute arises.
Frequently asked questions
Is a letter of intent legally binding?
It binds only to the extent it says so. This template makes the deal terms expressly non-binding while making exclusivity and confidentiality, if included, expressly binding. Without such language, courts look at wording and behavior, which is exactly the uncertainty to avoid.
What is the difference between an LOI and an MOU?
In US practice the terms are near-interchangeable: both outline a proposed deal before a definitive contract. LOI is more common in acquisitions and real estate; memorandum of understanding appears more in institutional and nonprofit contexts. What matters is the binding and non-binding language, not the title.
Should the LOI include the price?
Yes, or at least a range or formula. A price anchor is the main commercial function of the LOI. Since the deal terms are non-binding, stating a price does not lock you in if due diligence changes the picture, but it prevents renegotiation from zero.
How long should the exclusivity period be?
As short as realistically covers your diligence and drafting: 30 to 60 days is typical for small business and real estate deals, sometimes with an extension right. Sellers resist long exclusivity because it takes the asset off the market with no guarantee of closing.
Does the other party need to sign the LOI?
For the binding provisions to work, yes: have the recipient countersign and return a copy. An unsigned LOI still communicates your proposal but binds no one to exclusivity or confidentiality.