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 an agreement between two or more parties before the agreement is finalized. The concept is similar to a heads of agreement. Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements, Lease Agreements, and overall all Agreements which aim at closing a financially large deal.
LOIs resemble written contracts, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreements or a covenant to negotiate in good faith. 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.
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's known as a 'no solicitation' provision which would prevent the buyer from subsequently hiring 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 imposing a condition to complete the transaction on their part if financing the deal is not obtained.
The most common purposes of an LOI are:
- To clarify the key points of a complex transaction for the convenience of the parties
- 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 done for someone else e.g. credit card payments
An LOI may also be referred to as a term sheet or discussion sheet. The terms reflect different styles (an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips formalities and lists deal terms in a bullet-point summary), but usually do not indicate any difference under law. A contract, by contrast, is a legal document governed by contract law. Furthermore, there is also a specific difference between a letter of intent and a memorandum of understanding (MOU); an LOI outlines the intent of one party toward another with regard to an agreement, and may only be signed by the party expressing that intent, whereas an MOU must be signed by all parties to be a valid outline of an agreement. Nevertheless, LOIs are fairly often incorrectly referred to as MOUs and vice versa.
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 multi-million 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.same may be followed at the time of purchase by any company.
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.>><
- Typical example: 2008 Grant Solicitation for Consumer-Controlled Health Record Bank Pilots (PDF), Washington State Health Care Authority, retrieved 2008-05-21