A Letter of Intent (LOI) is a document signed between two parties when they wish to commence formal negotiations. The terms of such a letter can differ, but its overarching purpose is to set things in motion, with a signed agreement being the finish line. This is often useful in situations where commencement can’t afford to be delayed while waiting for a formal contract to be drafted. A common example of this is major construction and infrastructure projects that typically have tight deadlines. Letters of Intent are regularly associated and confused for a memorandum of understanding. The key element that separates the two documents is the ability for a letter of intent to become legally binding in certain instances. 

What’s the difference between a Letter of Intent and Memorandum of Understanding?

A memorandum of understanding sets out the proposed terms in the negotiation stage, however, it is not legally binding in nature. A letter of intent is used in most large business transactions and outlines the process of negotiation and provides a structure for how things will proceed in the intended agreement. Unlike a memorandum of understanding, provision of a letter of intent can be considered legally binding in regards to certain provisions, if specified within the letter of intent.

Use this Letter of Intent If:

• You wish to establish the basic terms to be used in a future agreement between parties
• You want to commence formal negotiation with another party

What does this Letter of Intent Cover?

• Acknowledgement of limitations
• Timescale 
• Notice of termination
• Primary obligations
• Confidentiality
• Costs
• Additional agreements
• Rights and remedies
• Governing law 
• Commencement