Business Law · Haute Lawyer Network
What Is a Letter of Intent in a Business Deal?
Last reviewed: June 2026
A letter of intent (LOI) — also called a memorandum of understanding (MOU) or term sheet — is a document that outlines the key terms of a proposed business transaction before a formal binding contract is drafted.
LOIs are used in business acquisitions, commercial real estate transactions, joint ventures, and major vendor agreements. They are typically non-binding on the substantive deal terms — the parties are not obligated to complete the transaction — but are binding on specific procedural provisions such as exclusivity, confidentiality, and expense allocation.
The LOI allows parties to agree on the big picture before investing in the expensive process of due diligence and contract drafting. If the parties cannot agree on the LOI terms, they can walk away before incurring those costs.
Frequently Asked Questions
Is a letter of intent legally binding?
The substantive deal terms — purchase price, structure — are typically non-binding. Procedural provisions — exclusivity periods, confidentiality, break-up fees — are often expressly made binding. Review the LOI carefully for binding provisions.
What is an exclusivity period in an LOI?
A period during which the seller agrees not to negotiate with other potential buyers while the parties complete due diligence and negotiate the definitive agreement. Exclusivity periods typically run 30-90 days.
Should I have an attorney review an LOI?
Yes. While the deal terms may be non-binding, certain LOI provisions are binding — and the LOI establishes the framework for the definitive agreement. Starting the deal properly with attorney guidance is less expensive than correcting problems later.
What happens if the deal falls apart after an LOI is signed?
If within the non-binding provisions, either party can walk away without liability — though the binding provisions (exclusivity, confidentiality) remain enforceable.
Can the terms in an LOI be changed in the final contract?
Yes. The LOI is a starting point, not a final agreement. Either party can negotiate different terms in the definitive agreement, though significant deviations from LOI terms can create friction or cause the deal to collapse.
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