A letter of intent sets out the main terms of a deal before anyone drafts the real contract. Most of it is deliberately not binding, but some of it always is, and people get into trouble when they cannot tell which parts are which.
Free to use. Legally binding under the ESIGN Act, UETA, and eIDAS.Updated September 2026 by Document eSign
A letter of intent, often shortened to LOI, is a short document recording the main terms two parties have agreed in principle before they negotiate the full contract. It is used most often when someone is buying a business, buying commercial property, taking a lease, or entering a significant supply or licensing arrangement. The commercial terms in it are normally expressed as non-binding, so that either side can still walk away, while a handful of provisions are meant to bind immediately: confidentiality, exclusivity, who pays the costs, and the governing law. The reason to write one is that it forces both sides to agree the shape of the deal cheaply, before the lawyers start drafting, and it flushes out the disagreements that would otherwise surface after everyone has spent money. The reason to be careful with one is that a court decides whether a document creates obligations by looking at what it says and what the parties did, not by what either side later says they meant.
Who uses it
A buyer making an offer for a small business before instructing lawyersA seller who wants a serious buyer locked into exclusivity before opening the booksA company taking commercial premises and agreeing heads of terms with a landlordAn investor setting out the shape of a funding round before the long-form documentsTwo businesses agreeing the outline of a distribution or licensing arrangementA party who has been sent an LOI and needs to understand what signing it commits them toAnyone who wants the deal on one page before spending money on a definitive agreement
What's inside
A one-paragraph description of the proposed transaction
A principal terms clause covering price, structure, what is included and what is excluded
A binding provisions clause that names, by number, exactly which clauses bind
An express statement that neither party is obliged to complete
A binding exclusivity or no-shop clause with an end date and a notification duty
A binding confidentiality clause that defers to any separate NDA already signed
Due diligence access terms, including no contact with customers or staff without consent
A binding announcements clause covering customers, suppliers and employees
A costs clause with a bracketed slot for a break fee, flagged as a binding obligation
Conditions to a definitive agreement, expressly non-binding
A timetable of target dates that cannot be breached
An election between no duty to negotiate and a binding duty to negotiate in good faith
Termination with a list of the clauses that survive it
Schedule 1, a clause-by-clause binding checklist both parties initial
A countersignature block, since an LOI is usually sent by one side and accepted by the other
HOW IT WORKS
From template to signed in three steps.
01
Start from the template
Open it in the editor with the fields already mapped, or download the DOCX to edit offline.
02
Add signers and send
Drop signature and date fields, then route each party in order or in parallel.
03
Get a sealed copy
Everyone signs, and you get a tamper-evident PDF plus an audit certificate.
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The details
Everything to know before you send it.
1
The only question that really matters
Almost every dispute about a letter of intent comes down to one question: did this document create an obligation. The answer is not decided by the title on the front page. Courts look at the words the parties used, the terms left open, whether performance had begun, and the context.
The most widely used framework comes from Teachers Insurance and Annuity Association of America v. Tribune Company, decided in the Southern District of New York on 26 June 1987 (670 F. Supp. 491), and it sorts preliminary agreements into two kinds. A Type I preliminary agreement is one where the parties have in fact agreed everything and simply intend to record it more formally later. That binds fully, and a party who refuses to sign the long-form document is in breach. A Type II preliminary agreement is one where terms are still open, but the parties have committed to a framework and to negotiating the rest of it in good faith. That does not oblige anyone to reach a deal, and it does oblige them to try honestly.
Type II is where people are surprised, because it is a long way from agreeing nothing. Preliminary agreements of this kind have generated substantial litigation: SIGA Technologies, Inc. v. PharmAthene, Inc. reached the Delaware Supreme Court twice, in 2013 (67 A.3d 330) and again in 2015 (132 A.3d 1108), over a document neither side had treated as the final contract. Whatever the outcome in any particular case, the practical lesson is that a paper you thought was preliminary can occupy years and a great deal of money.
Two caveats on all of this. Tribune is a federal decision applying New York law and SIGA is Delaware, and while the Type I and Type II vocabulary has been widely adopted, preliminary-agreement law is state law and the states do not treat it identically. Whichever state you name in clause 17 is the one whose approach will matter, so if a great deal is riding on the letter, check that state specifically. Clause 12 of this template makes you choose between the two positions explicitly instead of leaving a court to infer which you meant.
2
How to fill it in
Work backwards from Schedule 1. It lists every clause with a binding or not-binding marker, and completing it first tells you what you are actually signing.
Clause 1 and 2, the deal: describe the transaction in plain words and fill in price, structure, what is included and what is excluded. The exclusions line prevents more arguments than the inclusions line.
Clause 3, the binding list: this is the clause that does the work. It names the binding clauses by number so nobody has to interpret the document later. If you edit the clause numbering, update clause 3 and Schedule 1 in the same pass.
Clause 5, exclusivity: set a real end date. Thirty to sixty days is common for a small business sale. A seller giving exclusivity is turning away other buyers, so a long period without a deposit or a break fee is a poor trade for them.
Clause 6, confidentiality: if you already signed an NDA, use the bracketed sentence so the two documents do not conflict. Two confidentiality regimes on one deal is a drafting problem waiting to happen.
Clause 9, costs: each side normally bears its own. If you want a break fee, use the bracketed slot and say what triggers it, because a break fee is a binding payment obligation and it deserves to be drafted rather than implied.
Clause 12, negotiation: read the section above, then pick (a) or (b) deliberately.
Both parties initial Schedule 1. It takes a minute and it is the page you will want if there is ever an argument.
3
How LOIs accidentally become contracts
A letter of intent that says it is non-binding usually is. The problems come from the gap between what the document says and what the parties then do.
The document never says which parts bind. A letter that mixes obligations and intentions without distinguishing them invites a court to work it out, and courts do not always reach the answer either side wanted. Clause 3 exists to remove the question.
Every material term is settled. Once nothing is genuinely left open, a document can look like a Type I agreement whatever it calls itself, and the definitive agreement becomes a formality rather than a condition.
The parties start performing. Money changes hands, staff transfer, one side starts fulfilling orders. Conduct is evidence of intention, and partial performance is the single most common reason a supposedly non-binding document turns out to bind.
Someone writes down a promise without noticing. A sentence such as "we will supply the equipment from 1 March" reads as an obligation regardless of the disclaimer three pages earlier.
The disclaimer is buried or contradicted. If clause 4 says nobody is committed and clause 2 says a party shall do something, the two sit badly together. Keep the commercial terms in the language of intention.
Emails after signing. Negotiation correspondence can be read together with the letter, so a confident "we're agreed then" from someone senior is worth avoiding until the definitive agreement is signed.
4
Exclusivity is the clause with real money in it
For the buyer, exclusivity is usually the reason to sign an LOI at all. It buys a period during which the seller cannot run an auction while the buyer pays for legal and accounting diligence. For the seller, it is the clause that costs something, because it takes the business off the market and removes competitive tension at exactly the moment it is most valuable.
That asymmetry is worth pricing rather than ignoring. If you are the seller, keep the period short and tie it to the buyer actually doing something: a deadline for a first draft, evidence of funding, or a deposit. Switch on the bracketed early-termination right in clause 5, which ends exclusivity, without ending the rest of the letter, if the buyer proposes headline terms materially worse for you. That is the polite way of handling a re-trade. If you are the buyer, ask for enough time to complete diligence realistically, including third-party consents, and remember that a period so long that the seller will not agree to it is not worth pushing for.
Clause 5 is drafted so exclusivity can be mutual or one-sided, and it includes a duty to notify the other side that an approach was received. That notification is deliberately limited to the fact of an approach, not its terms, which is usually the version a seller will accept.
5
Letter of intent, memorandum of understanding or term sheet
These three names describe overlapping documents and the differences are more about convention than law. What actually matters in every case is what the document says about binding effect.
A letter of intent is normally written by one party and countersigned by the other, and it is the usual form in a business or property purchase. A memorandum of understanding is normally drafted jointly as a two-sided statement of a shared arrangement, and it is common between organisations working together rather than transacting, such as a partnership between a company and a non-profit. A term sheet is generally the most stripped-down version, often a bulleted list of commercial points with no drafting around it, and it is standard in venture financing.
Pick by fit rather than by label. If you are buying something and want exclusivity while you do diligence, this template is the right one. If two organisations are agreeing how they will work together with no purchase involved, use a memorandum of understanding. A court will not care which title you chose, so whichever you use, keep an equivalent of clause 3 in it.
6
If you have been sent one to sign
Receiving an LOI is not the same as writing one, and the party that drafted it has usually drafted it to suit themselves. Before signing, work through this.
Find the binding provisions clause first. If the document does not have one, that is the first thing to ask for, and it is a reasonable request that a serious counterparty will not refuse.
Check whether exclusivity is mutual or only on you. A no-shop that binds the seller while the buyer remains free to pursue three other targets is common and worth naming out loud.
Look for a break fee or an expense reimbursement hiding in the costs clause. That is a binding payment obligation, and it does not become less binding for sitting in a document titled non-binding.
Check the exclusivity end date against how long diligence will realistically take, then check what happens if it lapses. Under clause 13 the letter ends, which is usually what you want.
Read the access clause. Giving a competitor access to your customer list and your staff during a period when they may walk away is a genuine commercial risk, and clause 7's no-contact restriction is there for that reason.
Look at clause 12. Agreeing to negotiate in good faith is a real obligation, and if the counterparty has selected it, understand that it runs both ways.
If the commercial terms use the word shall, ask for it to be changed. Intention language protects both sides.
7
What happens after it is signed
The letter of intent is the start of the work rather than the end of it. In a typical business purchase the sequence runs: sign the LOI, exclusivity starts, the buyer begins diligence, the seller opens a data room, the buyer's lawyers produce a first draft of the definitive agreement, and the parties negotiate around what diligence turned up.
The part worth planning for is the re-trade. Diligence routinely surfaces something that changes the price, and the LOI's headline number is expressly not binding, so a buyer is entitled to revise it. What a seller can do is make that harder to do casually: keep the exclusivity period short, and switch on the bracketed early-termination right in clause 5, so that a materially worse offer releases the seller to talk to other people while the rest of the letter, including confidentiality, stays in place. Clause 13 lists the provisions that survive termination, which is where confidentiality does its most useful work. If the deal falls over, the other side still cannot use what they learned, and they still cannot announce anything.
8
When to get a lawyer involved
An LOI is short and cheap to produce, which is exactly why people sign them without advice and occasionally regret it. Some situations warrant a review before signing.
The transaction is a business or property purchase of real size. An hour on the LOI is cheaper than arguing about it during the deal.
You are being asked for a break fee, a deposit, or any payment obligation.
You are giving exclusivity for more than a couple of months, or giving it without anything in return.
The counterparty is a competitor and the letter gives them access to commercial information.
Clause 12(b) is on the table, since a binding duty to negotiate in good faith is a genuine obligation with real remedies attached.
Regulatory or third-party consents are needed, or the transaction is cross-border.
Anything in the document uses obligation language for the commercial terms. That is the drafting most likely to bind you by accident.
9
A note on what this page is
This is a general-purpose template and general information, not legal advice. Whether a preliminary document creates obligations is a question courts answer on the specific facts, and different states approach it differently. Use the binding provisions clause and Schedule 1 to make your intention as clear as you can, and take advice before signing anything that commits you to a payment or to a long period of exclusivity.
This template and the guidance on this page are provided for general information only and are not legal advice. Laws differ by country and state, so review the final document against your own situation and have a qualified lawyer check anything high-value or regulated before you sign.
FAQ
Questions, answered.
Is a letter of intent legally binding?
Partly, and that is the whole point of the document. The commercial terms are normally expressed as non-binding so either side can still walk away, while confidentiality, exclusivity, costs, announcements and governing law are meant to bind immediately. What decides it is the wording rather than the title, under the framework described in the first section of this page. Clause 3 removes the guesswork by naming the binding clauses by number, and Schedule 1 has both parties initial the same list. If you take one thing from this page, make it that: a letter of intent without a binding provisions clause is a letter asking a court to guess.
What is the difference between a letter of intent and a contract?
A contract creates obligations that a court will enforce. A letter of intent mostly records what the parties currently intend, with a small number of provisions carved out to bind straight away. The practical difference is that neither party has to complete the transaction described in an LOI, and clause 4 says so expressly. The boundary is softer than it looks, for the reasons set out above, so the safeguard worth knowing is a drafting one: keep the commercial terms in the language of intention. A clause 2 that says the parties propose a price reads very differently from one saying a party shall pay it.
Which parts of a letter of intent are usually binding?
Five categories cover the commercial substance: confidentiality, so information shared during diligence stays protected; exclusivity or the no-shop; costs, including any break fee; announcements, so neither side tells customers or staff prematurely; and governing law. This template binds more than that, because the machinery has to bind for the substance to work. The full list in clause 3 is clauses 3, 4, 5, 6, 7, 8, 9, 13, 14, 15, 16 and 17, which adds the no-obligation disclaimer itself, the diligence access terms, termination, notices, assignment and the entire agreement clause. Schedule 1 sets the same list out row by row for both parties to initial, so nothing turns on interpretation.
How long should exclusivity last?
Long enough for the buyer to do real diligence and short enough that the seller is not off the market indefinitely, with thirty to sixty days a common range for a small business purchase. The section above covers what a seller should ask for in return. The point to add here is what happens at the end: under clause 13 the letter itself terminates when the exclusivity period lapses without a definitive agreement, so exclusivity does not quietly roll on. If you want it extended, extend it in writing, and treat the request as a natural moment to ask the buyer for evidence that funding and diligence are actually on track.
Can I back out after signing a letter of intent?
Yes as to the transaction, and no as to the binding clauses. Clause 4 says either party may decide not to proceed at any time, for any reason or none, without liability for not completing. What you remain bound by is the list in clause 3: you still cannot disclose the other side's confidential information, you still cannot announce the deal, you still owe any break fee that has been triggered, and if you chose option (b) in clause 12 you still owe a duty to negotiate in good faith while the letter is running.
What does an obligation to negotiate in good faith actually require?
It requires you to negotiate honestly towards the framework you agreed. It does not require you to accept any particular term, or to reach a deal at all, and a party that genuinely tries and fails is not in breach. What it does rule out is negotiating with no intention of agreeing, reopening terms already settled without reason, or stalling while pursuing something else. Courts treat this as a real obligation rather than an empty one, which is why clause 12 makes you elect between having it and not, instead of leaving it to be argued about later.
Do both parties need to sign a letter of intent?
For the binding clauses to work, yes, since obligations like confidentiality and exclusivity have to be accepted before they bind anyone. The traditional form is a letter from one party that the other countersigns, which is why this template includes a countersignature block as well as a normal signature page. Use whichever suits: a countersignature reads more naturally when one side is making an offer, and a straight two-party signature is simpler if you have negotiated the document jointly.
What is the difference between an LOI and a memorandum of understanding?
Mostly convention rather than legal effect, and the section above sets out which document suits which situation. The point worth adding is that the label carries no weight in the analysis: a document titled memorandum of understanding can bind, and one titled non-binding letter of intent can bind too, if the words and the conduct point that way. So whichever you use, include an equivalent of clause 3. If you are working with a public body or a non-profit, expect the memorandum of understanding form, since that is the convention there.
Should the letter of intent include the price?
Yes, since agreeing the headline number is most of the reason for writing one. Put it in clause 2, along with how it is payable and how it is structured, and rely on clause 3 to keep it non-binding. The addition to what is said above: resist the temptation to make the price binding as a way of stopping a re-trade. A binding price sitting inside a document that is otherwise non-binding is precisely the mixture that makes a court examine whether the whole thing is a contract, which is the outcome the letter exists to avoid. Control the re-trade through a short exclusivity period and clause 5's early-termination right instead.
Does a letter of intent need to be notarised?
Signatures are all it takes, and it can be signed electronically under the ESIGN Act and state UETA statutes like any other business document. There is no witness or notary requirement. Where the eventual transaction involves real property, the definitive agreement and the deed will have their own formalities including notarisation and recording, but those attach to the closing documents rather than to the letter of intent.
What happens if the deal falls through?
The letter terminates under clause 13 and the binding clauses listed there carry on, which is the practical value of the whole document. The detail worth adding is the housekeeping: each party can require its confidential information back or destroyed, subject to the usual carve-out for one archival copy and routine electronic backups, and that request should be made in writing at the time rather than assumed. Confidentiality runs for the period stated in clause 6 from termination, so diarise the end date if the information still matters to you.
Is the letter of intent available in Word format?
Yes. Download the letter of intent as a Word (.docx) file and edit it in Microsoft Word, Google Docs, or Pages. Schedule 1 at the back is the binding provisions checklist both parties initial, and the key dates and figures block collects the bracketed terms in one place. You can also download a PDF or fill it in and sign online.
Can I download the letter of intent as a PDF?
Yes. A print-ready PDF is available alongside the Word version. Download either one free, or sign online without downloading anything.
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