Use a letter of intent to help avoid litigation

On Behalf of | Aug 31, 2021 | Business Litigation |

In business, conflicts are not always avoidable. Whether it’s a contract dispute or a problem with a real estate transaction, conflicts can be expensive and time consuming. Being proactive in any business deal can help avoid problems later on.

Letter Of Intent (LOI)

LOI’s can be formal or informal and long or short. Their purpose is to assist the parties involved in a transaction to ensure there is a meeting of the minds. Think of them as a ‘pre-contract’. They can be very flexible, reflecting the needs of the parties and the deal they are contemplating.

Topics frequently addressed in a letter of intent include identifying the parties, substantive issues, timelines, due diligence and nondisclosure agreements. Anything the parties believe should be addressed to keep them on the same page and avoid conflict can be included.

For instance, a sole proprietor may be in the process of selling their small business. Often, once the sale of a sole proprietorship is complete, the seller will remain with the business as an employee or consultant while the buyer gets settled. The buyer in this case may want to include in the LOI the intent of the parties that the seller will remain for some period of time.

Are letters of intent binding?

Most of the time, an LOI will not be legally binding in its entirety. In fact, LOI’s will frequently contain a provision expressly stating that the parties do not intend to be bound by it. However, individual provisions can be binding, such as nondisclosure agreements or agreements to negotiate in good faith. Because any business agreement can be delicate, any LOI should be reviewed by a competent professional to ensure it achieves its intended goals.