Letter of Intent Guide

A letter of intent (LOI) is a non-binding (or partially binding) document that outlines the key terms of a proposed transaction before a definitive agreement is signed. It's common in real estate, business acquisitions, and major contracts.

When you need an LOI

• Buying or selling a business — the LOI sets price, structure, and key terms before due diligence.
• Real estate transactions — the LOI outlines purchase price, contingencies, and closing timeline.
• Major contracts — before investing time in a detailed agreement, an LOI confirms both sides are aligned on basics.

What an LOI typically covers

• Transaction structure — asset purchase, stock purchase, merger, or other structure.
• Price and payment terms — purchase price, earnout provisions, financing conditions.
• Due diligence — what the buyer can inspect and for how long.
• Exclusivity — the seller won't negotiate with other buyers for a set period (this is usually binding).
• Timeline — key dates for due diligence, definitive agreement, and closing.

Binding vs. non-binding

Most LOIs are non-binding, with specific exceptions:

• Binding provisions — confidentiality, exclusivity, governing law, and breakup fees (if any).
• Non-binding provisions — price, structure, and all substantive deal terms (subject to definitive agreement).

Key pitfalls

• Too much detail — an LOI should set framework terms, not negotiate every clause. Save that for the definitive agreement.
• No expiration date — an LOI without a deadline can linger indefinitely. Include a date after which the LOI expires if not converted to a definitive agreement.
• Missing exclusivity — without an exclusivity clause, the seller can shop your offer to other buyers while you're doing due diligence.

Make it legal

• Authorized representatives of each party sign.
• Each party keeps a signed copy.
• Attach it to the definitive agreement when negotiations conclude.

A state-specific letter of intent drafted to your transaction takes about ten minutes.