Letter of Intent

What is a letter of intent?

A letter of intent is a non-binding letter that allows both parties to provide confirmation that they intend to reach a formal contract at some point in the future. The letter of intent may be used by one party or both to provide assurances to finance providers, landlords, or other bodies that it is anticipated that a contract will be concluded shortly.

 

What is the difference between a letter of intent and a formal agreement?

A letter of intent is merely a letter stating that the parties intend to eventually enter into a formal agreement with each other.

A formal agreement is a binding contract between the two parties that contains the terms and conditions that will govern the contractual relationship.

This distinction is important because it often arises in business where a party believes that the letter of intent is binding and seeks contractual remedy for its breach. The propositions in the letter of intent are not binding as they can always be changed in the eventual formal agreement, except where the parties expressly state that they intend to be bound by the contents of the letter of intent. Additionally, any terms of confidentiality included in the letter of intent will be binding.

 

Is it mandatory to have a letter of intent?

No, there is no legal requirement to have a letter of intent. The parties can go straight into creating a formal agreement. However, where the parties elect to have a letter of intent, they should clearly state any provisions that they wish to make binding.

 

What must a letter of intent contain?

A letter of intent must contain:

• The name and address of the party sending the letter;
• The name and address of the party receiving the letter;
• If the recipient is a business, the name of the person within the organisation to whom the letter is addressed;
• The name of the agreement being proposed;
• The proposed terms of the agreement;
• A clear statement addressing whether negotiations between the parties will be exclusive; and
• Any information that should be kept Confidential.

 

Who is involved in a letter of intent?

The parties to a letter of intent varies depending on the type of agreement being proposed. For example, if it is a sales agreement, the parties will be the Seller and the Buyer. If the agreement is a service agreement, the parties will be the Client and the Contractor.

 

What has to be done once a letter of intent is ready?

The completed letter of intent should be signed and sent by the party proposing or requiring a signed letter of intent to recognise the intention to contract in the future. The receiving party should then also sign and return a copy of the letter. The letter can be sent by email or by post.

 

Which documents should be attached to a letter of intent?

The following documents can be attached to a completed letter of intent:

• A non-disclosure agreement;
• A non-compete agreement; or
• Any previous correspondence of particular importance.

Which laws are applicable to a letter of intent?

There is no set statute that governs letters of intent. A letter of intent will be governed by the contract formed between the parties and their intentions to be bound by its provisions.

Help from a lawyer

You can choose to consult a lawyer if you need help.

The lawyer can answer your questions or help you through the process. You will be offered this option when you complete the document.

How to modify the template?

You fill out a form. The document is created before your eyes as you respond to the questions.

At the end, you receive it in Word and PDF formats. You can modify it and reuse it.