A letter of intent (LOI) outlines the key terms of a proposed deal before the parties invest time and money drafting a full agreement — a business sale, a partnership, a major purchase. Its value depends on being precise about what's binding and what isn't.
Most of an LOI is intentionally non-binding
The core deal terms in an LOI are typically expressed as non-binding — a statement of intent to negotiate toward a final agreement, not a commitment to close the deal. This gives both sides room to walk away if diligence reveals a problem.
Certain provisions usually are binding
Confidentiality, exclusivity (a promise not to negotiate with others for a period), and governing law provisions are commonly carved out as binding, even within an otherwise non-binding document — a distinction that has to be stated explicitly, or courts may not honor it.
Why the binding/non-binding line needs to be unambiguous
Poorly drafted LOIs have been found partially enforceable when courts concluded the parties' conduct showed intent to be bound despite non-binding language — a real risk if the document doesn't clearly separate which sections are which.
What a well-drafted LOI accomplishes
A clear LOI gets both sides aligned on price, structure, and timeline before expensive legal and diligence work begins — saving significant cost if a fundamental disagreement surfaces early rather than after a full agreement has been drafted.