What Is a Letter of Intent?
A letter of intent (LOI) is a broad agreement that acts as a basis for a further formal binding agreement. It can be a start to comprehensive cooperation between parties. For example, suppose the parties create a letter of intent before entering into a purchase agreement. In that case, the LOI helps them establish the terms of the contract before a more advanced version of the purchase agreement is created. If a letter of intent is connected with a school application or job employment, it will enhance the applicant's chances of getting enrolled or hired.
In the majority of cases, such a document is non-binding. Still, if the parties don't set it explicitly in the letter of intent, the court may consider it a legally binding contract that will be enforceable for both parties.
Usually, such a document sets a time period after which it loses its force if the parties sign a further legally binding contract.
Types of Letters of Intent
Letters of intent vary based on the relations they help establish between parties.
Business Relations
A business letter of intent is a financial document that an individual, the investor, creates to inform another party, the company, about the monetary contribution they are about to make. Such a letter of intent might imply making a financial investment to get partial ownership in a business, become a partner, or acquire a company's real estate.
A letter should contain the information on the sum to be invested and the interest in the investing party's company.
Purchase Agreement
A letter of intent to purchase can also be used between parties when a buyer aims to buy products from a seller before they craft a formal purchase agreement. The letter might include a specified amount of time the seller will have to decide whether they accept or refuse the buyer's offer. The product in question might be real estate, stock, part of a business, etc. The document should describe the type of asset that is about to be bought, its amount, and specifics. Other details of the deal are usually described in an advanced purchase agreement.
Litigation Process
A letter of intent to sue might also apply to conflict resolution between parties. A potential plaintiff can use it to notify the prospective defendant about their intent to file against them in court. In such a case, the document should tell the defendant's action is considered unlawful and set a specific time period that can be used to solve the conflict before starting the court proceeding.
School Application
In a school letter of intent, an applicant tries to persuade the committee that they deserve to enroll in the school or college. The letter should tell about the applicant's strengths and skills that might contribute to the educational community. It should also reveal their academic achievements and extracurricular accomplishments. Such an LOI generally goes along with an enrollment application and sets the tone for all of the documents submitted by an applicant.
Job Application
A job letter of intent aims to increase an applicant's chances of being hired by showing their skills and work experience that make them a perfect fit for the position they are applying for. It usually goes with a cover letter, but those two documents slightly differ. A letter of intent is a letter focused on the considered position and concentrates on the hiring company instead of the position. Skills required for the job are described more generally here than in a cover letter.
End of Tenancy
A letter of intent to vacate outlines the wish of the tenant to terminate the rental agreement. The letter should be sent in a period set by the state (often, it's 30 days). The document should be sent via certified mail with a return receipt. This will help the tenant prove that the letter was delivered to the landlord if the latter decides to ignore the tenant's request.
Is a Letter of Intent Legally Binding?
Whether a letter of intent is binding or not will depend on the agreement between parties. If they decide to make the document binding, it means that the document is enforceable and helps resolve the dispute should they address the court.
If a letter of intent has a clause stating that it is non-binding, it’s an unenforceable contract. It means that it cannot be contested in the court by any of the parties.
Often, a letter of intent is a document implying that the parties desire to record some preliminary discussions to make sure that they are both on the same page. By doing this, they show that they don't want to commit to a binding contract yet.
How to Create a Letter of Intent
A letter of intent requires less effort than an actual binding contract. However, parties still have to follow specific steps to create an enforceable document establishing a particular type of relations between them.
Step 1. Negotiate
The first step in creating a letter of intent is deciding whether parties want to make a binding or a non-binding agreement. Then, they should determine the main details of the document, including the product or service that is about to be purchased/provided, the sum that should be paid for it, when the payment is due, etc.
Step 2. Draft the document
When the parties are sure they have talked out all of the essential details of the future deal, they have all the information to write the letter of intent.
You can use our letter of intent builder and create either binding or non-binding documents. Please note that if you are going to make a binding document, the terms should be the same as in a future advanced contract. If you decide to craft a non-binding letter of intent, it would be enough to include only the most essential terms, such as an item/service and the purchase price.
Step 3. Complete the deal
Parties can complete the transaction in two ways, either by finalizing it with a letter of intent or creating a binding purchase agreement that would replace the preceding document.