What is a letter of intent?
A letter of intent (LOI) is a document that lays out the main terms of a deal or your intentions before a formal, binding contract is signed. It shows the other side you're serious, frames the negotiation, and gets the key points, price, timeline, conditions, on paper early. You'll see LOIs in real estate, business acquisitions, employment, and school admissions.
Most of an LOI is non-binding, it's a statement of intent, not a contract, so either side can still walk away. But certain clauses, like confidentiality, exclusivity ('no-shop'), or who pays costs, are often written to be binding. Saying clearly which parts bind and which don't is the single most important thing an LOI does.
When do you need one?
You're making an offer on a property or commercial space before drafting the purchase agreement
You're buying or selling a business and want to frame the deal before due diligence
You're expressing serious interest in a job, promotion, or transfer
You're applying to a university, graduate, or residency program that asks for a statement of intent
You want to reserve goods or a supply arrangement before the master contract
You're pledging a donation or gift and want the terms recorded
What it should include
Parties: who is sending the letter and who it's addressed to
Purpose: the deal, position, or program the letter concerns
Key terms: price or offer, timeline, and the main conditions
Contingencies: due diligence, financing, approvals, or other conditions
Binding clauses: confidentiality, exclusivity, and cost allocation, if any
Non-binding statement: clear language that the LOI itself isn't a final contract
Signature & date: the sender's signature, and space for the other side to acknowledge
Is a letter of intent binding?
Usually mostly no, and partly yes (I know right). The core terms are typically a non-binding framework, but clauses like confidentiality, exclusivity, and cost-sharing are often binding.
Courts look at the wording and the parties' conduct, so an LOI should say explicitly which parts bind. When in doubt, add a clear 'non-binding' clause.
LOI vs. MOU vs. term sheet
A letter of intent, memorandum of understanding (MOU), and term sheet all record intentions before a final contract. An LOI is usually a letter from one side; an MOU reads as a mutual understanding; a term sheet is a bulleted list of deal points. They overlap, and the label matters less than whether the terms are marked binding or not.
Common mistakes to avoid
Not saying whether the letter is binding, so a court has to guess
Being so vague on terms that the LOI doesn't actually guide the contract
Making promises you can't keep or terms you haven't thought through
Skipping confidentiality or exclusivity when the deal needs it
Treating the LOI as the final deal and never signing the real contract