Alina

Blog Bite: Mergers & acquisitions - what are the legal obligations of a non-binding letter of intent?

November 09, 2017

This article posted on our partner site Mondaq.com considers the parties’ obligation to reach a definitive agreement despite a letter of intent (LOI) that states that the intent was non-binding.

An agreement to agree is generally unenforceable when: 1) all essential terms have not been decided, and 2) the parties did not intend to be legally bound. Absence of good faith in negotiations may be considered despite a non-binding LOI. Canadian courts may extend a duty of good faith (honest and reasonable performance) to LOI’s.

Parties are encouraged to take three (3) steps when drafting a non-binding LOI. First, state that parties have no contractual obligations. Second, explicitly state the non-binding nature of the LOI. Third, potentially restrict the possibility of recovering damages (e.g. exclude damages for lost profits).

Term Sheet
Letter of Intent
Share Purchase Agreement
Blog Bites
Investor Term Sheet
Memorandum of Understanding

Written by Alina.