What Is A Letter Of Intent? Setting Contract Terms (2026)
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Reviewed By Adam Ramirez, J.D.
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Non-binding LOIs for real estate purchases, business acquisitions, commercial leases, investments, hiring, job offers, stock purchases, and charitable donations - with binding confidentiality and exclusivity clauses where applicable.
- Binding vs. non-binding clauses clearly separated
- State-specific enforceability rules built in
- Download-ready PDF in minutes
The 2026 Legal Form
Business Purchase LOI
Create a professional Letter of Intent to purchase a business - covers business acquisitions, asset purchases, stock or …
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Summary
- Negotiating and drafting contracts can be a complex process
- A letter of intent memorializes contract terms before drafting
- Letters of intent are usually non-binding, but there is a risk
A letter of intent (LOI) often precedes a binding contract. The LOI lists terms and, in most cases, specifically states that it is non-binding.
This intermediate step helps the parties verify what they believe they agreed on. Here’s a closer look.
Purpose and Benefits of a Letter of Intent
What is a letter of intent’s main purpose? An LOI lists the terms of a proposed deal. The parties use it to verify their understanding of the agreement before spending money to perform due diligence and draft a formal contract.
In some cases, the parties will identify terms that don’t match their understanding of the proposed deal. An LOI offers an inexpensive, quick and easy way for the parties to adjust the deal terms.
When to Use a Letter of Intent
What is a letter of intent used for? Letters of intent are often helpful when a deal includes many terms. They may also be used when a deal has terms that were not explicitly discussed.
For example, even with detailed notes, you might forget a term discussed during lengthy contract negotiations. An LOI can ensure that all parties are on the same page.
Conversely, suppose you spoke briefly to a manager who offered you a job but provided few details. An LOI can provide both you and the employer with a clear summary of the terms and conditions before acceptance.
Types of Letters of Intent
Letters of intent are used in many transactions, including:
- You might draft a business purchase letter of intent when buying or selling a business.
- You can draft a job letter of intent when hiring someone.
- You may draft a real estate letter of intent when buying or leasing land or buildings.
Generally, letters of intent are used in complex or high-value deals. However, even simple deals may benefit from a letter of intent, particularly when there may be a delay between the negotiations and the contract, to memorialize the terms.
How to Write a Letter of Intent
What is a letter of intent’s drafting process like? All relevant terms agreed upon during negotiations will go into the LOI. The letter will include the parties’ names and, in many cases, signatures.
Key Characteristics and Legal Considerations
Letters of intent often include several parts. First, the LOI usually describes its terms as non-binding. Non-binding letters of intent are common because the letter’s purpose is to avoid creating civil liability for either party until everyone understands the deal. However, some letters of intent inadvertently become binding as implied contracts if they fail to explicitly state their non-binding nature.
Second, the LOI describes the terms of the prospective contract. The terms should be written clearly. Ambiguous language defeats the letter’s purpose.
Additionally, the LOI will often state how the parties will proceed. It might set out a timeline for completing due diligence and signing a completed contract.
Drafting a Clear Letter of Intent
A clear letter of intent is an essential step in negotiating and writing a binding agreement. The right letter benefits all parties to a contract by ensuring certainty about the terms before formalizing the agreement.
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Frequently Asked Questions
Everything you need to know about our letter of intent templates
A Letter of Intent (LOI) is a document expressing one party's intent to enter into a transaction with another party. LOIs outline proposed terms - price, timeline, conditions - before a formal binding agreement is drafted. While most LOI provisions are non-binding, specific clauses like confidentiality and exclusivity are typically enforceable.
Generally no - LOIs are designed as non-binding expressions of intent. However, courts routinely enforce specific provisions that are expressly designated as binding, including confidentiality obligations, exclusivity or no-shop periods, and governing law clauses. In some cases, an LOI with sufficiently definite terms can be found binding even if labeled non-binding.
Both are pre-agreement documents, but an LOI is typically unilateral - one party expressing intent to the other - while a Memorandum of Understanding (MOU) is bilateral, signed by both parties to memorialize mutual understanding. In practice, courts focus on the language used rather than the title.
Yes. Real estate LOIs must address state-specific disclosure requirements, title and escrow customs, and Statute of Frauds compliance. Business purchase LOIs address asset versus stock acquisition structures, due diligence scope, employee retention terms, and non-compete provisions that do not apply to real property transactions.
In most states, a charitable pledge is not enforceable as a contract because it lacks consideration. However, under promissory estoppel, a charitable pledge may be enforced if the organization relied on it to its detriment - for example, by starting construction on a building funded by the pledge. Our LOI includes an optional binding pledge mechanism for donors who want their commitment to be enforceable.
A Letter of Intent to Hire is a pre-offer communication expressing an employer's intent to make a formal offer - it is non-binding and typically contingent on background checks, references, and budget approval. A formal offer letter, by contrast, contains definitive employment terms and, once accepted, may create binding obligations.
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