Letter of intent
Encyclopedia
A letter of intent is a document outlining an agreement between two or more parties before the agreement is finalized. The concept is similar to a heads of agreement
. Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements and overall all Agreements which aim at closing a financially large deal.
LOIs resemble written contract
s, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreement
s, a covenant to negotiate in good faith
, or a "stand-still" or "no-shop" provision promising exclusive rights to negotiate. An LOI may sometimes be interpreted by a court of law as binding the parties to it, if it too-closely resembles a formal contract.
The most common purposes of an LOI are:
An LOI may also be referred to as a term sheet
or discussion sheet. The terms reflect different styles (an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips formalities and lists deal terms in a bullet-point summary), but usually do not indicate any difference under law. A contract, by contrast, is a legal document governed by contract law. Furthermore, there is also a specific difference between a letter of intent and a memorandum of understanding
(MOU); an LOI outlines the intent of one party toward another with regard to an agreement, and may only be signed by the party expressing that intent, whereas an MOU must be signed by all parties to be a valid outline of an agreement. Nevertheless, LOIs are fairly often incorrectly referred to as MOUs and vice versa.
, a letter of intent is part of the application process, in which it is also known as a statement of purpose
or application essay. In education in the United States
, letters of intent are also frequently reached between high school senior athletes and colleges/universities, for the reservation of athletic scholarship
s for the athletes upon graduation from high school. School administrator
s in secondary education
often require a letter of intent before approving the formation of a student club
.
In real estate
, in cases where the real property
in question is not listed on a multiple listing service
, there may not be an easy way to notify the owner of the property and other interested parties of intent to purchase. Often it is necessary to officially begin the process of a purchase, and allow all peripheral interested parties to begin any other processes, with a letter of intent. For example, a multi-million dollar loan for a commercial property may require a letter of intent before a financial institution will allow personnel to spend time working on said loan necessary for the completion of the sale.
In the solicitation
of government grants, a letter of intent is highly encouraged but it is not required or binding, and does not enter into the review of a subsequent application. The information that it contains allows agency staff to estimate the potential workload and plan the review.
The LOI for a child (or dependent adult) with a disability
is a document written by the parent(s) or other legal guardian{s) of the disabled person that describes that person's history and current status, and location of all other relevant documents. In the event of the death of the guardian(s), courts typically rely upon this LOI for guidance in understanding the guardian(s) wishes with regard to furture care of the disabled dependent.
Heads of Agreement (law)
A heads of agreement is a non-binding document outlining the main issues relevant to a tentative agreement. A heads of agreement document will only be enforceable when it is adopted into a parent contract and subsequently agreed upon...
. Such agreements may be Asset Purchase Agreements, Share Purchase Agreements, Joint-Venture Agreements and overall all Agreements which aim at closing a financially large deal.
LOIs resemble written contract
Contract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
s, but are usually not binding on the parties in their entirety. Many LOIs, however, contain provisions that are binding, such as non-disclosure agreement
Non-disclosure agreement
A non-disclosure agreement , also known as a confidentiality agreement , confidential disclosure agreement , proprietary information agreement , or secrecy agreement, is a legal contract between at least two parties that outlines confidential material, knowledge, or information that the parties...
s, a covenant to negotiate in good faith
Good faith
In philosophy, the concept of Good faith—Latin bona fides “good faith”, bona fide “in good faith”—denotes sincere, honest intention or belief, regardless of the outcome of an action; the opposed concepts are bad faith, mala fides and perfidy...
, or a "stand-still" or "no-shop" provision promising exclusive rights to negotiate. An LOI may sometimes be interpreted by a court of law as binding the parties to it, if it too-closely resembles a formal contract.
The most common purposes of an LOI are:
- To clarify the key points of a complex transaction for the convenience of the parties
- To declare officially that the parties are currently negotiating, as in a merger or joint ventureJoint ventureA joint venture is a business agreement in which parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets...
proposal - To provide safeguards in case a deal collapses during negotiation.
An LOI may also be referred to as a term sheet
Term sheet
A term sheet is a bullet-point document outlining the material terms and conditions of a business agreement. After a term sheet has been "executed", it guides legal counsel in the preparation of a proposed "final agreement"...
or discussion sheet. The terms reflect different styles (an LOI is typically written in letter form and focuses on the parties' intentions; a term sheet skips formalities and lists deal terms in a bullet-point summary), but usually do not indicate any difference under law. A contract, by contrast, is a legal document governed by contract law. Furthermore, there is also a specific difference between a letter of intent and a memorandum of understanding
Memorandum of understanding
A memorandum of understanding is a document describing a bilateral or multilateral agreement between parties. It expresses a convergence of will between the parties, indicating an intended common line of action. It is often used in cases where parties either do not imply a legal commitment or in...
(MOU); an LOI outlines the intent of one party toward another with regard to an agreement, and may only be signed by the party expressing that intent, whereas an MOU must be signed by all parties to be a valid outline of an agreement. Nevertheless, LOIs are fairly often incorrectly referred to as MOUs and vice versa.
Specific examples
In academiaAcademia
Academia is the community of students and scholars engaged in higher education and research.-Etymology:The word comes from the akademeia in ancient Greece. Outside the city walls of Athens, the gymnasium was made famous by Plato as a center of learning...
, a letter of intent is part of the application process, in which it is also known as a statement of purpose
Statement of purpose
A statement of purpose, or personal statement, is a brief and focused essay about one's career or research goals, and is frequently required for applicants to universities, graduate schools, and professional schools. It is a required document when applying for admission to most professional...
or application essay. In education in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
, letters of intent are also frequently reached between high school senior athletes and colleges/universities, for the reservation of athletic scholarship
Athletic scholarship
An athletic scholarship is a form of scholarship to attend a college or university awarded to an individual based predominantly on his or her ability to play in a sport...
s for the athletes upon graduation from high school. School administrator
Head teacher
A head teacher or school principal is the most senior teacher, leader and manager of a school....
s in secondary education
Secondary education
Secondary education is the stage of education following primary education. Secondary education includes the final stage of compulsory education and in many countries it is entirely compulsory. The next stage of education is usually college or university...
often require a letter of intent before approving the formation of a student club
Extracurricular activity
Extracurricular activities are activities performed by students that fall outside the realm of the normal curriculum of school or university education...
.
In real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, in cases where the real property
Real property
In English Common Law, real property, real estate, realty, or immovable property is any subset of land that has been legally defined and the improvements to it made by human efforts: any buildings, machinery, wells, dams, ponds, mines, canals, roads, various property rights, and so forth...
in question is not listed on a multiple listing service
Multiple Listing Service
A multiple listing service is a suite of services that enables real estate brokers to establish contractual offers of compensation , facilitates cooperation with other broker participants, accumulates and disseminates information to enable appraisals, and is a facility for the orderly...
, there may not be an easy way to notify the owner of the property and other interested parties of intent to purchase. Often it is necessary to officially begin the process of a purchase, and allow all peripheral interested parties to begin any other processes, with a letter of intent. For example, a multi-million dollar loan for a commercial property may require a letter of intent before a financial institution will allow personnel to spend time working on said loan necessary for the completion of the sale.
In the solicitation
Solicitation
Literally, solicitation means: 'urgently asking'. It is the action or instance of soliciting; petition; proposal. In criminal law, it most commonly refers to either the act of offering goods or services, or the act of attempting to purchase such goods or services...
of government grants, a letter of intent is highly encouraged but it is not required or binding, and does not enter into the review of a subsequent application. The information that it contains allows agency staff to estimate the potential workload and plan the review.
The LOI for a child (or dependent adult) with a disability
Disability
A disability may be physical, cognitive, mental, sensory, emotional, developmental or some combination of these.Many people would rather be referred to as a person with a disability instead of handicapped...
is a document written by the parent(s) or other legal guardian{s) of the disabled person that describes that person's history and current status, and location of all other relevant documents. In the event of the death of the guardian(s), courts typically rely upon this LOI for guidance in understanding the guardian(s) wishes with regard to furture care of the disabled dependent.