Letter of intent
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 letter of intent (LOI or LoI, or Letter of Intent) is a document outlining the understanding between two or more parties which they intend to formalize in a
The capitalized form Letter of Intent may be used in legal writing, but only when referring to a specific document under discussion.
LOIs resemble short, written
A letter of intent may be presented by one party to another party and subsequently negotiated before execution (or signature). If carefully negotiated, a 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, a 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.[4]
Purposes
- Common purposes of a letter of intent include:
- allowing parties to sketch out fundamental terms quickly before expending substantial resources on negotiating definitive agreements, finalizing due diligence, pursuing third-party approvals and other matters[1]
- to declare officially that the parties are currently negotiating, as in a merger or joint ventureproposal
- to provide safeguards in case a deal collapses during negotiation
- to verify certain issues regarding payments made for someone else (e.g. credit card payments)
- Potential downsides to using a 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 a 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]
In the UK
Specific examples
In
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.[7] 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
See also
References
- ^ a b c d Lopez, Erik (July 20, 2015). "What you need to know about M&A letters of Intent". The M&A Lawyer Blog. Jasso Lopez PLLC. Retrieved August 28, 2015.
- ^ DKLM LLP, Letters of Intent - Getting Them Right, accessed 9 August 2021
- ^ Burwell, Robert (July 8, 2013). "When a Non-binding Term Sheet Becomes Binding". Mintz Levin. Mintz Levin Cohn Ferris Glovsky and Popeo PC. Archived from the original on July 12, 2013. Retrieved December 28, 2023.
- ^ "Letter of Intent to Buy A Business - Exit Promise". exitpromise.com. 11 March 2013. Retrieved 10 April 2018.
- ^ Elder, N. (2006), Letters of Intent and Quantum Meruit – Easy Street or Skid Row?, Brant Associates, published July 2006, archived 9 October 2007, accessed 11 August 2021
- ^ Byrne Wallace, Case Note: Ampleforth Abbey Trust v Turner & Townsend, published 2 November 2012, accessed 9 December 2023
- ^ Everson, Darren (February 2, 2011). "In College Football Recruiting, The Star Player Is the Fax Machine". Wall Street Journal. Retrieved February 2, 2011.
- ^ Typical example: 2008 Grant Solicitation for Consumer-Controlled Health Record Bank Pilots (PDF), Washington State Health Care Authority, archived from the original (PDF) on July 23, 2008, retrieved 2008-05-21