This article posted on our partner site Mondaq.com highlights how important it is for parties to clearly state their intentions when drafting a letter of intent (LOI).
Parties may intend for an LOI to be an enforceable agreement or non-binding, “agreement to agree”.
The author explains that when considering if an LOI is binding the courts consider two (2) key factors. First, does the LOI contain all essential information relating to the transaction or does it refer to future negotiations about significant terms of the deal? Second, did the parties intend to be bound, understanding that the definitive agreement would mirror the terms outlined in the LOI, or intend to suspend all legal obligations until establishing a final agreement?
When preparing a non-binding LOI, parties should explicitly state the non-binding intent of the LOI (or of specific previsions). Further to this, parties should avoid using contractual language and refer to the document as an LOI, term sheet, or agreement to agree.