A letter of intent (LOI) is a pre-contract document that signals a party's commitment to negotiate and potentially close a deal — acquisition, lease, financing, or partnership. Most provisions are non-binding; confidentiality and exclusivity clauses typically are binding.
An LOI sets the framework for a deal before lawyers draft the definitive agreement. In an acquisition context, the LOI outlines purchase price, structure (asset vs. stock), key conditions (financing, due diligence), timeline, and the exclusivity period during which the seller agrees not to talk to other buyers. In a commercial real estate context, the LOI precedes the lease agreement. In lending, some lenders issue a 'commitment letter' or 'term sheet' that functions similarly. The binding/non-binding distinction is critical. Most substantive terms in an LOI — price, structure, conditions — are explicitly non-binding. The parties intend to negotiate a definitive agreement where those terms will be binding. But certain provisions are routinely made binding even in a non-binding LOI: confidentiality (neither party discloses the deal), exclusivity or 'no-shop' (seller won't negotiate with other buyers during the period), and sometimes expenses (who pays if the deal falls apart). For small-business borrowers, the equivalent of an LOI in lending is the term sheet or commitment letter. When a lender issues a term sheet, it's typically non-binding (subject to underwriting and documentation) but signals strong intent. Always have an attorney review any LOI or term sheet before signing — the binding provisions matter.
Usually mostly no — but it depends on what it says. Most deal-term provisions in an LOI are explicitly stated as non-binding. But confidentiality clauses, exclusivity/no-shop clauses, and expense provisions are routinely made binding. Courts have found some LOIs to be binding if the language is specific enough and the parties treated them as binding. Always have an attorney review before signing.
They serve the same purpose — outline deal terms before a definitive agreement — but the terminology varies by context. 'LOI' is more common in M&A and real estate. 'Term sheet' is more common in lending and venture capital. Both are pre-contract documents with similar binding/non-binding dynamics.
Focus on: (1) exclusivity period length — is it reasonable? 30–45 days is typical for acquisitions; (2) what conditions allow either party to walk away; (3) whether there are any binding fee provisions (break-up fees, expense reimbursement); (4) confidentiality scope; (5) timeline for due diligence and closing. LOIs are less formal than definitive agreements but the terms set expectations that shape negotiations.