A Letter of Intent (LOI) is a statement of understanding between two parties that establishes a foundation for a future agreement. By signing a Letter of Intent, both parties show that they intend to continue negotiations in good faith.

Generally, parties don’t intend to be bound by a Letter of Intent. LawDepot's Letter of Intent template produces a non-binding document, meaning the parties are not legally required to follow through with the terms of the agreement.

A Letter of Intent creates a framework for negotiations. It can be difficult for two parties to continue negotiating without an outline of what they want to achieve and when they want to achieve it. A Letter of Intent outlines these stipulations to keep moving negotiations forward.

Also, an LOI can help parties focus on the issues that are relevant to the agreement rather than getting sidetracked by irrelevant details. By setting a closing date, which is the deadline that the parties expect to sign a binding agreement, parties can plan to finalise negotiations by a certain time.

A Letter of Intent is useful in any major or detailed business deal where there is a range of issues to be negotiated and decided. For example, you can use a Letter of Intent when you are:

• Buying or selling real estate
• Buying or selling a business
• Buying or selling goods
• Contracting or providing services
• Lending or borrowing money
• Entering into a business partnership

However, a Letter of Intent is not just limited to these situations. You can use a Letter of Intent under any circumstance in which two parties agree to move forward in good faith before finalising an arrangement.

To complete a simple Letter of Intent, you’ll need to provide the following information:

• Party details: Specify if each party is an individual or company, and provide names and addresses.
• Property, business, or transaction description: Depending on your situation, describe the real estate, business, or transaction.
• Price or amount: If you are buying or selling real estate or a business, outline the price. If you are lending or borrowing money, specify the amount and term.
• Closing date: Outline the deadline by which the parties expect to sign a binding agreement.
• Additional clauses: If there are any terms or issues unique to your situation, include a clause to account for these details.

Depending on how you are using a Letter of Intent, you will have to provide the additional information that is relevant to your circumstances. For example, if you’re creating an LOI for a real estate sale, you’ll need the address and a legal description of the property. You should also clarify the kind of property, such as commercial or residential, and give a description. If you’re using a Letter of Intent to lend money, outline the loan amount and term.

LawDepot's Letter of Intent is not a legally binding document. Instead, it provides a structure for parties to negotiate freely and without the fear of being bound to any terms.

However, commercial negotiations often require confidential disclosures from one party so that the other party can decide whether to go ahead with the transaction. For example, if you are buying a business, you may need to see financial statements which the seller will need to be kept confidential. Sometimes, a Letter of Intent includes a section on confidential obligations, which is intended to be legally binding. LawDepot recommends using a separate Confidentiality Agreement for this purpose.

You don’t have to formally terminate a Letter of Intent as it’s not a binding agreement. If you’ve only created an LOI, you are only in the negotiation phase of an agreement. Either party can still choose to end negotiations at any time with no legal ramifications.