Tenants Beware: Are Letters Of Intent Ever Binding?

Understanding the Factors That Determine the Enforceability of Letters of Intent

The answer to the question posed in the title is: it depends.

A dispute often arises with respect to letters of intent ("LOI") upon the breakdown of the relationship between parties: one party argues that the letter of intent formed a binding agreement, and the other party disagrees. The courts in solving this dispute have looked at the specific language employed in the letter as well as the conduct of parties.

This Insight will explore when LOIs are binding on parties.

What is a Letter of Intent?

A letter of intent (LOI) is a written document that sets out the parties' terms connected to a proposed transaction, such as purchasing assets from a company or shares of company from a shareholder. It is often nonbinding, and it states a preliminary commitment by one party to do business with another party. A letter of intent is very similar to a memorandum of understanding, a