What is a Letter of Intent, and what should be included in one?

Originally Published : April 2, 2014

When parties agree upon initial terms of a deal, whether it is for the purchase of a business, a purchase of assets, or a commercial lease, they often sign a Letter of Intent, or LOI.  A LOI is a short document that details the major business points of a deal before a full contract is prepared.  LOIs are sometimes also referred to as a Memorandum of Understanding, or MOU.

 

LOIs are often non-binding, and are used to make sure that all of the parties involved have reached a basic understanding of the transaction.  Despite the fact that a LOI may be non-binding, the terms listed in the LOI are usually not subject to further negotiations, so it is important to make sure they are fully agreed upon.  Even if a LOI is meant to be non-binding with respect to the terms of the deal, it is often beneficial to make some aspects of the LOI be binding on the parties, including a confidentiality provision and/or an exclusivity provision.  If any terms are to be binding, the remedy for breach should be specifically stated as well.

 

Terms included in a LOI can vary depending on the type of deal.  For the purchase of a business, some common terms include price, payment terms (including any promissory note amounts), conditions to closing, due diligence to be performed, confidentiality, and exclusivity.  Some common terms for a LOI for a commercial lease include premises, square footage, rent, taxes, utilities, length of lease, rent escalation, security deposit, right to sublease or assign, and any work to be performed by either the landlord or the tenant.

 

If you have any questions about a letter of intent, or other contract issues, you should contact a New York small business attorney.  We are very familiar with these documents and transactions, and are available to discuss and advise on such issues.