Free Letter of Intent (LOI) Template

A letter of intent, commonly abbreviated as an LOI, is a written document that records the preliminary understanding between two or more parties who intend to enter into a future agreement. It captures the key business points of a proposed transaction, such as the parties involved, the purpose of the deal, the major terms under discussion, and the timeline for moving toward a definitive contract. An LOI is signed before the parties invest the time and expense of negotiating and drafting a final agreement, so it serves as a roadmap rather than the destination.

The defining characteristic of most letters of intent is that they are primarily non-binding. The parties express a serious intention to proceed, but they are not yet legally obligated to complete the transaction. This distinction matters because it allows both sides to conduct due diligence, secure financing, and refine the terms without locking themselves into a deal that may later prove unworkable. A well-drafted LOI states explicitly which provisions are binding and which are not, removing ambiguity that could otherwise lead to a dispute.

Letters of intent appear across many contexts. In mergers and acquisitions, a buyer issues an LOI to outline the proposed purchase price and structure before formal due diligence begins. In commercial real estate, an LOI sets out the basic terms of a lease or property purchase. In employment, a candidate may receive a letter of intent that summarizes a prospective offer. Despite the different settings, the underlying function is the same: to align the parties on the essential terms and demonstrate genuine commitment to negotiating in good faith toward a final, binding agreement.

A letter of intent is most useful at the moment two parties have agreed on the broad strokes of a deal but have not yet worked out the full details. Sending an LOI signals that the discussion has moved past casual interest and that both sides are prepared to devote real resources to closing the transaction. The following situations are where an LOI delivers the most value.

Business acquisitions are the most common setting. Before a buyer commits to weeks of due diligence and legal expense, an LOI confirms the proposed purchase price, the deal structure, and the period of exclusivity during which the seller agrees not to negotiate with other buyers. This protects the buyer's investment of time and money.

Commercial real estate transactions frequently begin with an LOI. Whether the parties are negotiating a lease or a purchase, the letter records the rent or price, the term, key contingencies, and the responsibilities of each side, giving the attorneys a framework for drafting the formal contract.

Joint ventures and partnerships rely on LOIs to capture each party's contribution, the division of profits, and the governance structure before the parties spend money forming a new entity or drafting a detailed operating agreement.

Financing and investment deals use letters of intent, sometimes called term sheets, to outline the amount of capital, the valuation, and the major rights of investors before a binding subscription or loan agreement is prepared.

Large supply or service contracts may start with an LOI when one party needs to begin preparatory work, such as ordering materials or reserving production capacity, before the comprehensive agreement is finalized. In every case, the LOI bridges the gap between a handshake and a signed contract, reducing the risk that either party walks away after substantial effort has been expended.

A clear letter of intent addresses the essential terms of the proposed deal while leaving the finer details for the definitive agreement. The following components form the backbone of a well-structured LOI.

Writing an effective letter of intent is a matter of being clear about what has been agreed, honest about what remains open, and explicit about what is binding. Begin by identifying the parties accurately, using full legal names and addresses so there is no ambiguity about who is committing to the document. State the date the LOI is entered into, as this date often triggers exclusivity periods and other time-sensitive provisions.

Next, describe the purpose of the transaction in plain language. A single, well-crafted sentence explaining the type of deal, such as a potential asset purchase or business partnership, orients every reader who later picks up the document. Follow the purpose with the proposed terms, listing the major points the parties have discussed. Use specific figures and dates where they have been agreed, and use placeholders or ranges where they have not. Avoid implying certainty about terms that are still genuinely open.

Address confidentiality and, if relevant, exclusivity early, and make clear that these provisions are intended to be binding. Then include the single most important paragraph: a clear non-binding statement explaining that the LOI does not obligate either party to complete the transaction, except for the provisions you have identified as binding. This sentence is what separates a useful planning document from an accidental contract.

Close with the governing law, a good-faith negotiation clause if the parties wish to commit to continued discussion, and signature blocks with printed names, titles, and dates. Before signing, both parties should read the entire document carefully and, for any significant transaction, have it reviewed by an attorney. A short, precise LOI that everyone understands is far more valuable than a long one that creates confusion about what was actually agreed.

The most important legal principle governing letters of intent is that the label on the document does not determine whether it is binding. Courts look at the substance of the language and the intent of the parties, not the title. A document called a letter of intent can be held to be a fully enforceable contract if it contains all the essential terms of a deal and does not clearly state that a further definitive agreement is required. The opposite is also true: an LOI can be effectively non-binding if it expressly says so.

For this reason, the centerpiece of every well-drafted LOI is an explicit statement separating binding from non-binding provisions. The standard approach is to declare that the LOI as a whole is non-binding and creates no obligation to complete the transaction, while carving out a short list of provisions, typically confidentiality, exclusivity or no-shop, and governing law, that the parties intend to be binding and immediately enforceable. This structure has been endorsed by courts and legal commentators as the clearest way to avoid disputes about enforceability.

Courts in several jurisdictions also recognize that signing an LOI can create a duty to negotiate the remaining terms in good faith, even when the deal itself is non-binding. The well-known case of Texaco, Inc. v. Pennzoil Co. illustrates the danger: a preliminary agreement that the parties believed was non-binding led to a multi-billion-dollar judgment after one side was found to have wrongfully interfered with the expected deal. The lesson is that an LOI is not a casual document. Where real estate or goods of significant value are involved, the statute of frauds may require that any binding commitment be in writing and signed. Because the rules on enforceability vary by state and by transaction type, parties entering into a significant LOI should have it reviewed by qualified legal counsel.

Even experienced parties stumble when drafting letters of intent. The following mistakes are the most frequent and the most likely to cause problems later.