Letters of Intent

What is a letter of intent?

A letter of intent is an informal document containing the purpose and general terms and conditions of a contract and shows the parties' intention or commitment to enter into a formal contract. It is usually used in situations where it can take time to prepare and draw up a complex agreement.

Does a letter of intent constitute a contract?

A Letter of Intent does not usually constitute a contract as it lacks intention of the parties to be legally bound. It may contain some legally binding provisions, such as clauses requiring confidentiality or exclusivity and details of payments for costs. However the document as a whole is not intended to be a contract, but rather a roadmap for negotiations.

Is a letter of intent binding?

A Letter of Intent is not usually intended to be legally binding. However if it is a detailed document clearly setting out the parties’ intentions and fails to state that a contract is not intended a court could find it legally binding. To avoid this the LoI should be carefully drafted so it does not closely resemble a formal contract.

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