How to Draft a Letter of Intent

06/09/2023

29 min

Note: Links to our free templates are at the bottom of this long guide.
Also note: This is not legal advice

Introduction

Writing a comprehensive letter of intent is essential for any kind of business transaction or negotiation. Signed off by all parties involved, the document serves to clearly set out expectations and protect everyone’s interests, as well as providing valuable evidence in the event of a dispute. The ��Ƶ team, who provide free letter of intent templates to help craft such documents, explain why it is so important.

An LOI is legally binding, outlining the basic terms and scope of an agreement between two or more people. It also ensures that each party knows exactly what they can expect from one another, including their responsibilities and duties; safeguarding against potential misunderstandings which could lead to disputes later on down the line. As such, it’s critical to make sure that the language used in an LOI is clear and comprehensive - failing to do so may invalidate it in court if needed.

Moreover, by drafting an LOI businesses not only protect their own interests but create a sense of urgency around a transaction; helping to move things along at a steady pace while ensuring that all parties are fully aware and accepting of the agreement’s terms. Furthermore, its practical applications extend beyond legal agreements too - an LOI can be used as proof-of-commitment when entering into employment contracts or launching new ventures too!

In short: without a clear letter of intent in place no agreement should be made until both parties have had time to read through it properly - after all it might just save your skin further down the line! If you’re looking for help with crafting your own letters of intent then why not take advantage today of ��Ƶ’s free template library? Our step-by-step guide will walk you through every stage so you can get started right away – no account required!

Definitions

Letter of Intent (LOI): A non-binding document used to outline the key elements of an agreement between two or more parties and demonstrate both parties’ commitment to the agreement.

Legally Binding: A formal agreement between two or more parties that is enforceable by law.

Non-Binding: Not legally enforceable.

Mergers and Acquisitions: The process of combining two or more companies into one or transferring ownership of one company to another.

Real Estate: Property, land, buildings, and other assets that have a legal title.

Terms and Conditions: A set of rules and regulations that must be agreed upon by two or more parties in order to enter into a contract.

Financial Considerations: Factors that must be taken into account when making financial decisions.

Template: A pre-drafted document that provides a structure for a certain type of document.

Negotiations: Discussions between two or more parties to reach an agreement.

Termination Clause: A clause in a contract that outlines the conditions under which either party can terminate the agreement.

Introduce the purpose of the letter of intent
Explain the key elements of a letter of intent
Parties involved
Description of the proposed transaction
Terms and conditions
Non-binding nature of the document
Describe the types of letters of intent
Commercial lease
Merger and acquisition
Employment
Real estate
Outline the legal implications of a letter of intent
Not legally binding
Potential to become legally binding
Advice of legal counsel
Explain the key differences between a letter of intent and a contract
Intent vs. binding
Length
Negotiations
Provide a template for drafting a letter of intent
Offer guidance on the language and format for a letter of intent
Formal language
Heading
Salutation
Body
Closing
Offer tips for negotiating the terms of a letter of intent
Goals
Timelines
Conditions
Termination
Provide advice on how to best present a letter of intent
Professionalism
Clarity
Courtesy
Summarize the key takeaways from the article

Get started

Introduce the purpose of the letter of intent

Understand what a letter of intent is and why it is important
Explain what the letter of intent is for and why it is being written
Outline the purpose of the letter of intent in the introduction
State clearly what you are asking or proposing

Once you have provided a clear introduction to the purpose of the letter of intent, you can check this off your list and move on to the next step.

Explain the key elements of a letter of intent

Introduction: State the purpose of the letter, who is sending it and to whom it is addressed
Overview: Provide a brief overview of the agreement being proposed
Details: Include the details of the agreement, such as the terms, conditions, and timeline
Closing: Summarize the main points of the letter and the expectations of the parties involved
Signatures: Include the signatures of both parties

When you can check this off your list: You will know that you can check this step off your list when you have included all of the key elements of a letter of intent in your draft.

Parties involved

Identify the parties involved in the letter of intent: who is drafting the letter and who is receiving it?
Make sure that the parties involved in the letter of intent are clearly defined and identified.
Ensure that the parties involved in the letter of intent are not subject to change.

Once you have identified the parties involved in the letter of intent, you can check this step off your list and move on to the next step.

Description of the proposed transaction

Outline the purpose of the letter in detail
Provide details of the proposed transaction, including any relevant timeline, price, terms, and conditions
Make sure all parties involved understand the purpose and intent of the transaction
When the proposed transaction has been fully detailed, you are ready to move on to the Terms and Conditions step.

Terms and conditions

Brainstorm and list out any potential terms and conditions that you want to include in the letter of intent
If you are uncertain of any legal terminology or need advice, consult with a lawyer or other professional
Make sure to write down all the details of the proposed transaction that were listed in the previous step
Outline the details of the proposed transaction, such as the timeline, payment terms, and any other relevant information
Ensure that any terms and conditions you include are legally binding
Once you have included all the terms and conditions that you want in the letter of intent, you can move on to the next step which is outlining the non-binding nature of the document.

Non-binding nature of the document

Explain that a letter of intent is not a binding agreement and does not create any legal obligations
Make sure to include language that clearly states the non-binding nature of the document
Note that both parties are free to terminate negotiations at any time
When finished, check off this step and move on to the next step of describing the types of letters of intent.

Describe the types of letters of intent

Letters of intent are typically used in commercial leasing agreements, mergers and acquisitions, and other business transactions.
It is important to differentiate between a binding and non-binding letter of intent.
A binding letter of intent is an agreement between two or more parties to enter into a contract at a later date.
A non-binding letter of intent is typically used to declare the intent of the parties to move forward in negotiations. It does not create any legally binding obligations.

You will know when you can check this step off your list when you have a clear understanding of the different types of letters of intent and the difference between binding and non-binding letters of intent.

Commercial lease

Research the local commercial real estate market to determine the going rate for similar properties
Consult a lawyer to ensure you are aware of all the legal implications of the lease
Draft a letter of intent that outlines the main points of the agreement, such as the length of the lease, the amount of rent, and any special terms
Negotiate the terms of the lease with the landlord or property owner
When you and the landlord or property owner have agreed on all the terms, sign the letter of intent and the commercial lease

Once the letter of intent and commercial lease have been signed, you can check this step off and move on to the next step.

Merger and acquisition

Collect all relevant financial records of the company that is being acquired
Collect information on the proposed merger and/or acquisition, including timeline and financial details
Draft the letter of intent in accordance with applicable laws and regulations, including any disclosures required by the relevant regulatory authority
Contact a qualified legal professional to review the letter of intent
Finalize the letter of intent and sign the letter
You will know that you can move on to the next step when the letter of intent has been finalized, signed, and sent to the other party.

Employment

Research the company you plan to send the letter of intent to, to ensure that the proposed terms are reasonable and beneficial to both parties.
Gather information on the company’s past experiences with letters of intent, to ensure that your letter is drafted in the correct format and style.
Draft the letter of intent, including language that clearly outlines the terms and conditions of the proposed agreement.
Have the letter reviewed and edited by a qualified attorney to make sure that all legal requirements are met.
Submit the letter of intent to the other party.
You will know that you have successfully completed this step when you have received a response from the other party, either confirming or rejecting the proposed agreement.

Real estate

Research the property you are interested in: its location, size, zoning, and any other relevant information
Determine what type of lease you are looking for: is it a commercial, industrial, or residential property?
Consider the terms of the lease: what kind of lease length are you looking for and what terms and conditions are you willing to accept?
Draft a letter of intent with the details of the lease, including the length of the lease, the amount of rent, and any other conditions or clauses you would like to include.
Make sure to include your contact information in the letter of intent.
When you have completed the letter of intent, review it to make sure all details of the lease are accurate and that all parties agree to the terms.
Once the letter of intent is complete, you can move on to the next step of outlining the legal implications of a letter of intent.

Outline the legal implications of a letter of intent

Understand that a letter of intent is not legally binding
A letter of intent outlines the basic terms and conditions of a proposed agreement and serves as a starting point for negotiations
Ensure that the letter of intent includes details such as the purchase price, the subject of the agreement, closing date, and any other terms that the parties to the agreement may agree upon
Understand that a letter of intent is not enforceable by law, but it can be used as evidence in a court of law, if necessary
When you have outlined the legal implications of the letter of intent, you can move on to the next step.

Not legally binding

Understand that a letter of intent is not a binding agreement.
Draft the letter of intent so it clearly states that it is not a binding agreement and that neither party is legally obligated to proceed with any agreement.
Make sure to include language that states that any agreement between the parties is subject to due diligence and the execution of a formal contract.
Once the letter of intent is complete, you can check this off your list and move on to the next step.

Potential to become legally binding

Understand the process for making a Letter of Intent legally binding, including who must sign and what documents need to be exchanged
Determine when the Letter of Intent should become legally binding, or if it will remain non-binding
Have either party’s legal counsel review the Letter of Intent to ensure it meets all legal requirements
Have all necessary parties sign the document, and exchange the necessary documents if applicable
Check that the Letter of Intent is legally binding when all necessary steps have been completed

Advice of legal counsel

Obtain advice of legal counsel to ensure that the letter of intent is not inadvertently creating a binding contract.
When obtaining legal advice, the lawyer should provide guidance on the use of language, the potential pitfalls and how to avoid them.
The lawyer should also explain the implications of the letter and the likely outcomes.
Once the advice of legal counsel has been obtained, the letter of intent is ready to be sent.

Explain the key differences between a letter of intent and a contract

Understand that a letter of intent is a non-binding document that outlines the preliminary terms of an agreement between two parties
A contract is legally binding and outlines the final terms of an agreement
Know that a letter of intent allows the parties to negotiate the details of the agreement before entering into a contract
Recognize that a letter of intent is not enforceable in a court of law
Be aware that a contract is enforceable in a court of law
Understand that a letter of intent is usually used when entering into a business arrangement or a purchase agreement

When you can check this off your list and move on to the next step:

Once you understand the key differences between a letter of intent and a contract, you can move on to the next step.

Intent vs. binding

Understand the purpose of a letter of intent (LOI): it outlines the broad strokes of a proposed agreement and serves as a framework to negotiate a full contract
Recognize the difference between a binding and non-binding LOI: a non-binding letter of intent is not a legally enforceable agreement and does not guarantee that an agreement will be reached, while a binding LOI may be legally enforceable
Decide if the LOI should be binding or non-binding: depending on the situation, you may need to create a legally binding contract or a basic non-binding agreement
When you have a clear understanding of the differences between a binding and non-binding LOI, you can check this off your list and move on to the next step.

Length

Make sure your letter of intent is short and sweet - no more than one page.
Include the purpose of the letter of intent, a brief description of the agreement, and any relevant dates.
Keep the tone of the letter formal and professional.
Once you’ve written your letter of intent, read it over to make sure it is concise and clear.

You’ll know you can check this step off your list when you are happy with the length of the letter and the information included.

Negotiations

Set up a meeting with the other party to discuss and negotiate the terms of the letter of intent
Make sure to discuss the details of the agreement and the expectations of both parties
Take notes of all the agreed-upon terms and conditions
Make sure to address any possible disputes in the letter and come to a mutual understanding
Once everything is agreed upon, have the other party sign off on the letter to make it official
When all negotiations have been finalized, you can check this step off your list and move on to the next step of providing a template for drafting the letter of intent.

Provide a template for drafting a letter of intent

Research commonly used language and format for letters of intent
Outline the purpose of the letter and what it will convey
Determine the length of the letter
Create a draft of the letter, including any necessary information
Compile a list of all parties involved, including contact information
Proofread the letter for any errors
Finalize the document, if needed

Once you have a template for the letter of intent, you can check this step off your list and move on to the next step.

Offer guidance on the language and format for a letter of intent

Research the format required by the recipient of the letter of intent
Consider using a business letter format, including the date, recipient address, and subject line
Use formal language and avoid any colloquial terms
Use clear and concise language
Ensure the letter is easily readable and does not have any typos or errors
Refer to any enclosures you may be sending along with the letter
Check that the letter is free of any legal or contractual obligations

When you can check this off your list and move on to the next step:

When you have completed the formatting and language of the letter
When the letter is free of any errors or typos
When the letter contains no legal or contractual obligations

Formal language

Use third-person language throughout the letter
Avoid using contractions and slang
Use professional and polite language
Ensure all sentences are complete
Proofread the letter to check for typos or grammar errors

Once you have composed the letter using formal language, you can move on to the next step of adding the heading.

Heading

Choose a heading for the letter that accurately reflects the purpose of the document
The heading should be centered and in a larger font than the rest of the letter
Use a professional font such as Times New Roman or Arial for the heading
Once the heading is chosen and formatted correctly, you can move on to the next step of writing the formal language of the letter.

Salutation

Begin the letter with the salutation, “Dear [Name],”
If you are not sure of the name of the person to whom you are writing, you can use “To whom it may concern”
Check that you have used the correct name and title of the person
When you have written the salutation, you can move on to the next step of drafting a letter of intent.

Body

Outline the main points of the agreement and the purpose of the letter
Identify the parties involved and the context of the agreement
Detail the terms and conditions of the agreement, such as any deadlines, delivery dates, or payment terms
Specify any additional agreements, such as any non-disclosure or confidentiality agreements
Sign and date the letter once both parties agree on the terms

You’ll know you’ve completed this step when the body of the letter includes all the necessary details and agreements.

Closing

Reiterate the main points of the letter of intent
Express your enthusiasm for the project, and your interest in further negotiations
Thank the recipient for their time and consideration
Include your contact information
Sign the letter of intent
Check the letter of intent for errors and typos
When you are satisfied with the letter, you can send it to the recipient and move on to the next step in the process.

Offer tips for negotiating the terms of a letter of intent

Clarify the roles and responsibilities of each of the parties involved
Negotiate the timeframe for completion of the project
Negotiate the financial terms of the agreement
Ensure that all potential liabilities are discussed and covered in the agreement
Ensure that all potential outcomes are discussed and fully understood by both parties
Include a clause in the agreement to outline the process for dispute resolution
Have both parties sign the agreement once all terms have been agreed upon

You’ll know that you can move on to the next step when you have discussed and covered all of the terms of the agreement, and both parties have signed the agreement.

Goals

Take time to think about what your goal is for the letter of intent
Identify the key elements that will help you reach that goal
Develop an action plan to accomplish the goals
Brainstorm any potential obstacles that may come up
Make a list of any contingencies that need to be addressed
Be sure to include any special terms or conditions that should be discussed
When you have identified all the elements, you can move on to the next step.

Timelines

Establish a timeline for the letter of intent. This timeline should include when the letter will be sent, when a response is expected, and when the parties involved should communicate again.
Take into account any external deadlines or factors that will impact the timeline, such as legal requirements or certain dates that must be met.
Note any milestones that need to be achieved as part of the timeline, such as the completion of documents or the payment of fees.
Once you have drafted the timeline, review it to make sure it is realistic and achievable.
Once you are satisfied with the timeline, you can check this step off your list and move on to the next step.

Conditions

Determine the conditions that need to be met in order for the letter of intent to be valid.
Consider the conditions from both sides, and make sure all parties involved are comfortable with the conditions.
Include items such as the type of agreement, the timeline of events, the duration of the agreement, and termination clauses.
Make sure to include clauses that allow both parties to terminate the agreement in certain circumstances.
When all parties agree to the conditions, the letter of intent can be signed.

Termination

Determine the length of time the agreement will stay in effect.
Include a provision that allows either party to terminate the agreement, specifying the conditions of termination.
Consider the consequences of a breach of the agreement and what might constitute a breach.
Include language that allows either party to terminate the agreement without cause.
Include language that states what will happen to the agreement in the event of a party’s death or insolvency.
Make sure that the letter of intent clearly states the conditions and procedures for termination.

You can check this step off your list once you have included all of the necessary provisions that relate to the termination of the agreement.

Provide advice on how to best present a letter of intent

Make sure to write in a professional and concise manner to ensure you are taken seriously.
Use clear and straightforward language, avoiding overly-complicated terms and jargon.
Start with a brief introduction that outlines the purpose of the letter and the parties involved.
Include a few paragraphs summarizing the details of the intent, such as the timeline, the terms, and any other relevant information.
End with a summarizing statement and a polite closing.
Proofread your letter of intent for grammar, spelling, and accuracy.

You’ll know you can check this step off your list when you have a letter of intent that is accurate, professional, and concise.

Professionalism

Use a professional tone, including formal language and grammar
Address the letter to the appropriate person or department
Double-check for typos and factual errors
Include all relevant contact information
Once everything is correct, you can move on to the next step.

Clarity

Choose a clear and concise subject line for the letter, such as “Letter of Intent for [Name of Project].”
Begin the letter by restating the purpose of the document and its intended recipient.
Ensure that all the necessary information is included in the letter, such as the names of the parties and the specific details of the agreement.
Double check that all the relevant details are accurate and clearly stated.
Make sure that the letter is easy to read and understand by using simple language, active verbs, and avoiding complex jargon.
Proofread the letter for any errors and typos before sending it out.

Once you’ve made sure that the letter is clear, concise, and accurate, you can move on to the next step: ### Courtesy.

Courtesy

Make sure to address the letter to the recipient in a respectful manner.
Begin the letter with a polite salutation such as ““Dear [Name],””
Be concise and to the point when outlining the purpose of the letter and what you are asking for.
Use professional language and avoid slang.
Include a polite closing such as “Sincerely,” and your signature.
Proofread the letter for any typos or errors.

How you’ll know when you can check this off your list and move on to the next step:
Once you have written the letter in a respectful manner, addressed the recipient, outlined the purpose of the letter and what you are asking for, and included a polite closing, you can move on to the next step.

Summarize the key takeaways from the article

A letter of intent is a document that outlines an agreement in principle between two or more parties before the agreement is finalized
It should include the basic elements of a contract, such as parties, purpose, timeline, and other relevant details
The letter should be as detailed as possible and should explain the intent of all parties
The letter should also include a signature of all parties involved to signify agreement
Once you have drafted the letter, review it to make sure it is clear and accurate and that all parties involved have agreed to the terms
You will know you have successfully drafted a letter of intent when all parties have signed the document.

FAQ

Q: What are the differences between US, UK and EU options laws?

Asked by Francesca on 10th April 2022.
A: Options trading is regulated differently in the US, UK and European Union. In the US, options are regulated by the Commodi