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Letter of intent

Letter of intent
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For the "letter of intent" in U.S. college sports, see National Letter of Intent.
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for verification. (January 2009)
The examples and perspective in this article deal primarily
with the United States and do not represent a worldwide
view of the subject. (March 2009)
A typical LOI
A letter of intent (LOI or LoI, and sometimes capitalized as Letter of Intent in legal writing,
but only when referring to a specific document under discussion) is a document outlining
the understanding between two or more parties which understanding they intend to
formalize in a legally binding agreement. The concept is similar to a heads of
agreement, term sheet or memorandum of understanding. Such outlined agreements may
be merger and acquisition transaction agreements,[1] joint venture agreements, real
property lease agreements and several other categories of agreements that may govern
material transactions.
LOIs resemble short, written contracts, but are usually in tabular form and not binding
on the parties in their entirety. Many LOIs, however, contain provisions that are binding,
such as those governing non-disclosure, governing law, exclusivity or covenants to
negotiate in good faith.[1] An LOI may sometimes be interpreted by a court of law as
binding the parties to it if it too-closely resembles a formal contract and does not
contain clear disclaimers.[2]
A letter of intent may be presented by one party to another party and subsequently
negotiated before execution (or signature). If carefully negotiated, an LOI may serve to
protect both parties to a transaction. For example, a seller of a business may incorporate
what is known as a non-solicitation provision, which would restrict the buyer's ability to hire
an employee of the seller's business should the two parties not be able to close the
transaction. On the other hand, an LOI may protect the buyer of a business by expressly
conditioning its obligation to complete the transaction if it is unable to secure financing for
the transaction.[3]
1Purposes of an LOI
2Specific examples
3See also
Purposes of an LOI[edit]
Common purposes of an LOI are:
To allow parties to sketch out fundamental terms quickly before expending substantial
resources on negotiating definitive agreements, finalizing due diligence, pursuing thirdparty approvals and other matters[1]
To declare officially that the parties are currently negotiating, as in a merger or joint
venture proposal
To provide safeguards in case a deal collapses during negotiation
To verify certain issues regarding payments made for someone else (e.g., credit card
Potential downsides to using an LOI may include:
The parties may engage in protracted negotiations on only a subset of a deal’s terms
Management time and focus may be diverted
Alternative opportunities may be missed and markets may move against the parties
during negotiations
Parties may reduce their lack of a workable deal framework into an LOI, with a hope of
making progress later
Public disclosure obligations may be inadvertently triggered
The risk of leaks, exacerbated by the desire of some to tout the LOI to the world, or
shop it to other parties[1]
Specific examples[edit]
See also: National Letter of Intent
In academia, a letter of intent is part of the application process,[clarification needed] in which it is also
known as a statement of purpose or application essay. In education in the United States,
letters of intent are also frequently reached between high school senior athletes and
colleges/universities, for the reservation of athletic scholarships for the athletes upon
graduation from high school. School administrators in secondary education often require a
letter of intent before approving the formation of a student club.
In real estate, in cases where the real property in question is not listed on a multiple listing
service, there may not be an easy way to notify the owner of the property and other
interested parties of intent to purchase. Often it is necessary to officially begin the process
of a purchase, and allow all peripheral interested parties to begin any other processes, with
a letter of intent. For example, a multimillion-dollar loan for a commercial property may
require a letter of intent before a financial institution will allow personnel to spend time
working on said loan necessary for the completion of the sale. The same may be followed
at the time of purchase by any company. A tenant and landlord may sign a letter of intent
prior to signing a lease agreement to stipulate rental rates and all regulations of the future
tenancy.[citation needed]
In the solicitation of government grants, a letter of intent is highly encouraged but it is not
required or binding, and does not enter into the review of a subsequent application. The
information that it contains allows agency staff to estimate the potential workload and plan
the review.[4]
See also