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Letter of Intent (LOI) Template (Free Download + AI Generator)
Greg Mitchell | Legal consultant at AI Lawyer
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Your Guide to Drafting Effective Letters of Intent
A Letter of Intent (LOI) is a practical bridge between a handshake and a signed contract. It captures the essential business terms—price, scope, timing, contingencies—so both sides know they’re aligned before investing in full legal drafting. As part of our Letters & Notices category, this guide explains how to draft an LOI that reduces misunderstandings, sets expectations, and keeps negotiations on track.
Used across real estate, M&A, employment, and joint ventures, a well-crafted LOI reduces misunderstandings, sets expectations, and keeps negotiations moving. It’s also where you decide what is and isn’t binding (for example, confidentiality and exclusivity), which can make or break leverage later.
Download the free LOI template or customize one with our AI Generator—then have a lawyer review before signing.
Table of Contents
What Is a Letter of Intent?
Why You Need a Letter of Intent
Types of Letters of Intent
Key Elements Every LOI Should Include
Binding vs. Non-Binding Provisions
Negotiation Strategies for LOIs
Common Mistakes to Avoid
Legal Context for LOIs
Tips for Drafting an Effective LOI
Checklist for a Letter of Intent
FAQs
1. What Is a Letter of Intent?
A Letter of Intent records the principal terms of a proposed deal before the parties sign a definitive agreement. Think of it as a roadmap: it sets scope and structure, clarifies the timeline, and flags what must happen before closing (financing, due diligence, approvals).
Many LOIs are non-binding overall, but they commonly include binding pieces—like confidentiality, no-shop (exclusivity), access for diligence, and governing law—so everyone can share information and plan next steps with confidence.
2. Why Do You Need a Letter of Intent?
A good LOI pays for itself by preventing rework and dead-ends.
Clarity: You align on price, scope, and conditions early, so lawyers draft from a shared outline.
Efficiency: You don’t spend on full contracts until the big issues are settled.
Risk control: You can make sensitive terms binding (confidentiality, exclusivity, break-rights) while keeping economics non-binding pending diligence.
Momentum: Milestones and deadlines keep the deal moving.
Ambiguity is the #1 dispute trigger in commercial relationships. Independent research from World Commerce & Contracting identifies ambiguous contract terms as the leading cause of buyer–supplier conflicts—well ahead of many operational factors. Aligning terms clearly in the LOI stage is one of the simplest ways to reduce that risk.
3. Types of Letters of Intent
Non-binding LOI (with binding carve-outs): The typical modern approach—commercial terms are indicative while confidentiality, exclusivity, process, and law/venue are binding. See practical law-firm guidance on why labeling alone doesn’t control enforceability and why carve-outs matter.
Binding LOI: Fully commits the parties on price, terms, and closing. Useful in narrow, fast-close deals—but it leaves little flexibility if diligence reveals issues.
Real estate LOI: Lays out price or rent, term, options, fit-out/tenant work, contingencies (zoning, financing), and target dates.
Corporate/M&A LOI (or Term Sheet): Frames valuation, structure (asset vs. stock), consideration mix (cash, rollover equity, earnout), diligence scope, no-shop, and target signing/close.
Joint venture/strategic LOI: Captures contributions, governance, veto rights, profit-sharing, IP and non-compete boundaries.
4. Key Elements Every LOI Should Include
Parties & purpose — Legal names, roles, and a one-line deal description.
Scope & key economics — Price or pricing method, payment structure, what’s included/excluded.
Diligence & conditions — Access to data/sites, third-party consents, financing, approvals.
Timeline — Milestones for diligence, drafting, signing, and closing.
Exclusivity (no-shop) — Duration, permitted contacts (if any), remedies for breach.
Confidentiality — What can be shared, with whom, how long, and data-return rules.
Allocation of costs — Who pays what (e.g., each bears own costs).
Governing law & venue — Jurisdiction that applies to any binding provisions.
Termination — How the LOI ends (date-certain, breach, mutual agreement).
Signatures — Authorized signers for each party.
5. Binding vs. Non-Binding Provisions
To avoid accidental contracts, separate the binding and non-binding parts explicitly, and say so in plain language:
Binding examples
Confidentiality (including permitted disclosures and remedies)
Exclusivity/no-shop (with clear start/end dates)
Access & process (site visits, data rooms, contacts)
Governing law, venue, and dispute resolution
Public statements (press-release protocol)
Non-binding examples
Headline price/valuation and payment structure (subject to diligence)
Target timelines (subject to change)
Closing conditions and covenants (to be finalized in the definitive agreement)
Courts will look beyond labels to the language and conduct of the parties. Simply calling a document an “LOI” doesn’t make it non-binding; clarity on intent is what counts.
6. Negotiation Strategies for LOIs
Agree the deal-breakers first. Price method, scope, and must-have conditions should be settled before wordsmithing.
Write for strangers. Assume a judge or successor will read the LOI—favor short sentences, defined terms, and numbered lists.
Control information flow. Tie diligence access to confidentiality and use-restrictions; name who can see what.
Use targeted exclusivity. Right-size no-shops (duration, carve-outs, break-fees if appropriate).
Time-box the process. Put dates on drafts, diligence, and decision points to keep momentum.
Pick your law and forum. Choose a predictable jurisdiction for the binding carve-outs.
7. Common Mistakes to Avoid
Blurry intent. Failing to state which parts are binding invites enforceability fights.
Vague economics. “To be agreed” language on core terms can derail definitions.
Loose exclusivity. If the no-shop is fuzzy, it’s hard to police (or remedy) leaks and auctions.
Over-promising pre-diligence. Leave room to adjust once facts emerge.
Silence on publicity. Control announcements to avoid misstatement or premature disclosure.
Ignoring dispute mechanics. Without a venue/ADR clause for the binding pieces, you lose leverage.
Ambiguity and missing terms are a documented, leading cause of contract disputes—avoid both in the LOI and you lower your odds of conflict later.
8. Legal Context for LOIs
Courts recognize two big ideas about “preliminary” contracts:
Binding preliminary agreements (Type I) and agreements to negotiate in good faith (Type II). The Teachers Insurance & Annuity v. Tribune line of cases explains when a preliminary document is fully binding (Type I) and when it only obligates parties to negotiate in good faith on open terms (Type II). Clear wording, completeness of terms, and the parties’ behavior all matter.
Good-faith negotiation can be enforceable—and expensive. In SIGA Technologies v. PharmAthene, the Delaware Supreme Court upheld expectation damages for a party that breached its obligation to negotiate in good faith consistent with a term sheet—an LOI cousin. Breaching a “negotiate in good faith” clause isn’t just bad form; it can trigger real monetary awards.
And remember the cautionary tale of Texaco v. Pennzoil: a signed “agreement in principle” was treated as binding, leading to one of the largest civil judgments in history. If you intend not to be bound, say so—clearly, repeatedly, and consistently with your conduct.
9. Tips for Drafting an Effective LOI
Lead with intent. In the first paragraph, say “Except for the sections labeled Binding, this LOI is non-binding.”
Label headings. Add “(Binding)” or “(Non-Binding)” to section titles so there’s no doubt.
Define capitalized terms. Keep a mini-definitions list (e.g., “Confidential Information,” “Exclusivity Period”).
Use checklists and exhibits. Attach a term summary, timeline, and diligence request list.
Plan the pivot. Include who drafts the definitive agreement and by when.
Mind the signatures. Make sure authorized signers execute on behalf of the correct entity.
10. Checklist for a Letter of Intent
Before you sign, confirm your LOI includes:
Parties’ full legal names and authorized signers
Clear purpose/transaction description
Headline economics and pricing method
Diligence scope and data-room access rules
Conditions to signing/closing (financing, approvals, third-party consents)
Exclusivity/no-shop window with exact dates (Binding)
Confidentiality and permitted disclosures (Binding)
Publicity/announcement protocol (Binding)
Allocation of fees/expenses
Timeline: drafting, diligence, signing, closing
Governing law, venue, and dispute resolution for Binding sections
Termination mechanics (date-certain, breach, mutual)
Statement of non-binding intent for the rest (and consistency throughout)
Download the Full Checklist Here
11. FAQ’s
Q: Is a Letter of Intent legally binding?
A: Most LOIs are non-binding overall, but certain sections—like confidentiality, exclusivity, and governing law—can be made binding if clearly stated. Courts will look at the language and the parties’ conduct, not just the document’s title, when deciding enforceability.
Q: Why use an LOI instead of going straight to a full contract?
A: An LOI aligns both sides on major terms before legal drafting begins, saving time and cost. It reduces the risk of wasted effort, identifies deal-breakers early, and lets you decide which protections should apply while negotiations continue.
Q: Can a “non-binding” LOI still be enforced?
A: Yes—in some situations. If the language or conduct suggests mutual commitment, or if a “good faith negotiation” clause is breached, courts can award damages. Notable cases like Texaco v. Pennzoil show how unclear intent can turn an LOI into a binding agreement.
Q: What should always be in the binding section of an LOI?
A: Typically, confidentiality rules, exclusivity/no-shop terms, access and diligence process details, publicity restrictions, governing law, and remedies for breach. Label these as “Binding” to avoid confusion.
Q: How long should an LOI be?
A: Simple deals can be covered in 1–3 pages; complex transactions may run longer. The goal is brevity with clarity—enough detail to guide the definitive agreement without turning into one.
Q: What’s the biggest mistake to avoid when drafting an LOI?
A: Failing to specify which terms are binding and which aren’t. Ambiguity here is one of the top causes of enforceability disputes and can leave you stuck with terms you didn’t intend to finalize.
Disclaimer
This guide is for informational purposes only and does not constitute legal advice. Laws and enforceability standards vary by jurisdiction and facts. Consult qualified counsel for guidance tailored to your situation.
Get Started Today
Lock alignment early, keep momentum, and protect your interests with a crisp LOI. Download the free template or customize one with our AI Generator, then have an attorney review the binding carve-outs before you sign. For more resources to help you communicate clearly and protect your position in negotiations, explore our Letters & Notices category.
