What Is a Letter of Intent?
A Letter of Intent (LOI) is a legal document in the form of a letter that outlines an understanding between the parties of a deal and can in some cases constitute a binding agreement. It is not, strictly speaking, the contract itself, but a written memorialization of the contract negotiations that the parties have begun to discuss.
- Letter of Understanding.
This document is sometimes called a "Letter of Intent to Contract" because it is used by the party wishing to have a final contract. It is sent to a potential contract business and includes the terms of the agreement that normally have been previously agreed upon verbally. For this reason, this document is sometimes called a pre-contract. A final contract will incorporate the Contract Letter of Intent and will be a lot more extensive.
The goal of your letter is to demonstrate your commitment to the deal and outline the basic terms of the agreement. The templates provided down below will help simplify the process.
Letter of Intent Types
- Non-Binding Letter of Intent. These describe a potential future agreement about the terms of a transaction or purchase that occurs between two parties.
- Letter of Intent to Homeschool. This is a document completed by parents or guardians to notify the local Department of Education that a child will be homeschooled instead of attending a public or private institution.
- Letter of Intent for College. This letter is an integral part of a college application package.
- Letter of Intent for Medical School. This is a letter submitted to a medical school or university that offers medical courses.
- Letter of Intent for a Job. These introduce a job applicant to their potential employer and identifies their previous work experience and skills that make them the best candidate for the offered position.
- Residency Letter of Intent. These letters are written by a candidate to convince a residency program to admit them. The most popular out of these are Pharmacy Residency Letters of Intent which are written by pharmacy students and pharmacy residents looking to acquire a pharmacy practice residency.
- Letter of Intent to Purchase Business. This is a written statement prepared and signed by the seller and purchaser of a business prior to them transferring ownership of the company.
- Letter of Intent to Purchase Real Estate. This letter is written by the purchaser of real estate to outline the main terms and conditions of the potential sale.
- Letter of Intent to Lease Residential Property and Letter of Intent to Lease Commercial Property. These are prepared by a landlord or property manager and inform the prospective tenant of the premises about rental conditions and their expiration date.
Are Letters of Intent Legally Binding?
Although not binding in court, Letters of Intent are treated as precedents to contracts in the United States and are subject to both federal and state laws. This document shows the goodwill of both parties to enter into a negotiation. Depending on the contract, some parts of it may be governed by federal law and some others will be covered by state laws.
How to Write a Letter of Intent?
Sometimes when you intend to purchase a company or part of a company you want to make sure the seller excludes negotiations with another buyer. The Letter of Intent or a memorandum of understanding shows you are serious about the purchase, which helps to block other buyers from making their offers.
If you have the basic information about the deal, creating this letter is not difficult. The following is a set of details a Letter of Intent usually contains:
- The contact information, title, and business name of all parties;
- The underlying transaction;
- Prospective purchase details;
- Liabilities or obligations;
- Negotiation rights and responsibilities;
- Confidentiality provisions;
- Duration of the letter’s validity.
Needless to say, the letter must be signed, ideally by all the parties involved. Our templates allow you to enter this information into a pre-filled document. The rest of the document is auto-filled when you submit the above information. Remember, that even though most LOIs are not legally binding, there are still consequences for breaking a deal. Your credit history, company value, or actual financial state may be affected, especially if the matter goes to court.