An LOI is a non-binding document between two (2) parties that sets forth the intent to undertake the same contract in a more formal state at a later time. A formal contract will be based on the "intent" of the parties expressed in the letter. It is advisable to include a clause stating whether the document is binding or non-binding to avoid legal issues. Otherwise, a court may deem any of the terms in the letter enforceable and binding.
Categories of Letter of Intent templates
Free Purchase Order Letter of Intent Template
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Letter of Intent - What is it?
An agreement is reached with a letter of intent before a more advanced contract is drafted. Letters of intent are common in the business community. The letter of intent is usually nonbinding, but still contains the expectation that both parties will follow up and negotiate honestly. The parties must sign a binding written contract by a certain date, such as thirty (30) days.
Do Letters of Intent have legal force?
A letter of intent is only legally binding if it's included in the agreement. In other words, a clause in the letter of intent typically states that a formal agreement will not be binding until a certain time has passed.
Binding vs Non-Binding LOI
- Binding – This means that the letter of intent can be enforced in the same way as any other contract.
- Non-Binding – This means the letter of intent will not be legally binding, but represents only a symbolic gesture that the parties intend to create a formal agreement at a later date.
The Letter of Intent: How Does It Work?
The first step is to negotiate between the parties
Any agreement will need to be negotiated between the parties. An intent letter may be drafted after the main details have been determined, such as the price or method of payment for services.
Writing the Letter of Intent is step two
An intent letter may be made when enough details are agreed upon. Incorporate as many of the agreed-upon items as possible.
- Binding letters should contain the same terms as standard agreements if they are enforceable.
- In a non-binding letter, the main terms, such as payment or compensation, should be included. The remainder of the agreement will be drawn up later.
The third step is to complete the transaction
Either finalize the deal or convert the letter of intent into a binding contract. Each party has a responsibility to continue the transaction in 'good faith’ with the other.
Step 1: Obtain your Letter of Intent
Review the available Letter Of Intent templates and forms by clicking on the blue buttons for its preview or by clicking the links on this page. It can be edited in Word or PDF.
Step 2 - Provide the return address for this correspondence
Start by opening the first page of your Letter of Intent Template. It is expected that official letters will display a return address where responses can be sent by mail if necessary. The left-hand side of the letter has several lines reserved for displaying the return address.
Step 3 - Date this letter
Adding a specific date to the letter as the first date becomes a useful document between the Sender and recipient is the second area to be addressed. Use the two lines following the phrase "Effective Date" to note the concerned calendar date.
Step 4 - Determine Who Will Receive The Letter
There will also need to be a recipient name added to the header. This presentation will take up three lines. The first line must have the recipient's name, and then the next three lines will need the recipient's address.
Step 5: Display The Topic Of The Letter
In addition, attaching a definitive subject is a good idea as a matter of protocol and record-keeping. This blank line following the abbreviation "RE" (referring to) is intended to capture the general topic of this letter. Upon reporting this topic, this letter will contain the name of the Sender, the date the document becomes active, the name of the recipient, and (with this last entry) the topic of discussion.
Step 6 - Indicate the durability of the letter
In the first paragraph, there are two checkboxes to be reviewed. If the purpose of this document is to bind its Participants to its contents without further review and judgment by a court (because that is what will be considered in court automatically), the binding checkbox should be selected. Mark the "Non-Binding" checkbox, however, if this document is intended as a guide for its Participants and would require the courts to review and decide whether compliance is warranted.
Step 7 – Introduce The Buyer
It is necessary to identify each participant in the transaction. A predetermined sum of cash will be submitted to the Seller of tangible and intangible property by an individual or business entity referred to as the Buyer in the first paragraph beneath the introduction ("I. The Buyer''). The next line of this statement contains two blank spaces. Detailed information about the Buyer's building, street, and unit number should be included in the address for correspondence regarding this letter. On the second blank space, enter the city where the address can be found. In the final blank space of this statement, it seeks the zip code designated for the address in question.
Step 8 - Name the vendor
In addition to the current owner, the seller will have to provide solid proof of his or her identity. Continue to the next section ("II. The Seller") and write the full name of the property's seller on the first blank line. The second and third lines of the seller's article will require the building number, street, unit, and city where mail should be sent. The last line needs the state where mail will be delivered.
Step 9 - Document the payment details
It is of great importance that the buyer clearly states how much they intend to pay for the goods and/or services the seller can provide in the third article of this letter. There is a space set to present this dollar amount after the words "...Pay The Seller The Amount Of". To the left of the word "Dollars," enter the dollar amount you intend to submit to the Seller, and in the second place in parenthesis, enter a numerical value of that amount.
An exact description of the seller product or service the Buyer is interested in is listed on the third empty line. In the empty line below "... In Exchange For" and the parentheses label "(Goods/Services)," add a brief description of what the Buyer is buying.
Step 10 - Define the intended payment terms
A clear definition of the payment terms is necessary for it to be submitted. It is designated by the letter "IV.". Under the title "Payment", three checkbox options are offered. All parties will need to be able to agree on one of these before this definition becomes solid. It is recommended to mark "At A Later Date," "Signing," and "Other" if a specific payment date has been discussed or will be considered reasonable by both parties. 'Signing' should be your choice if this is not the case.
Payment dates need to be named if they'll be set. Two options are provided within this choice, but only one may be selected. On the lines provided, enter the payment date if a specific date is to be mentioned here. Check the second checkbox if a formal contract will be in place to determine the payment date. A formal agreement will determine the payment date in the example below.
If both parties have agreed to submit payment at the time of signing, then mark the box labeled "Signing" and the first check box that follows (see below). If not, then check "Another Formal Agreement.". Defining how the Buyer will pay you directly is necessary if payment is not made "at a later date" or at the time of signing. In such a case, check the "Other" checkbox and write down the date on the blank line after the word "Other.".
Step 11 - Discuss The Deposit Status Affecting The Purchase Of The Property Or Service
Buyers want assurance that the seller is serious. This is especially true if significant value is to be exchanged. For this reason, Section V. Deposits addresses this subject. There are two checkbox statements presented here, one of which needs to be chosen to define this status correctly. The first checkbox must be checked if a deposit is required.
Additionally, the dollar amount for the deposit must be written on the line following the word "Dollars." Return to the parentheses and re-enter the dollar amount numerically. As soon as a deposit is determined, it is crucial to clarify whether it is refundable or not. There is only one option. Thus if the deposit is “Refundable” indicate this by checking either the “Refundable” checkbox or recording the terms of the deposit refund.
If the transaction resulting in this letter is canceled, you can check the "Non-Refundable" box in order to document that the Seller is not required to return the money. By selecting the box labeled "Deposit Not Required," a buyer will be released from the obligation to provide any deposit amount but will still be bound by all the remaining obligations.
Step12 - Indicate In Case Financing Is Required
The purchase of some items requires financing. The Buyer can use that source of money to ensure the Seller is paid. There will be a need for this assurance in most transactions where the asking price of the property (tangible or intangible) is high enough that the seller requires it. Check the box labeled "Conditional Upon Financing" if this transaction can only occur if the Buyer is able to secure financing.
There must be some framework for how financing can take place. When the buyer cannot meet future payments, the seller may only require a letter of financial support to prove that he or she has attempted and likely will obtain financing.
Step 13 - Display The Applied Jurisdiction
If this letter of intent is binding, it may also be non-binding. The state holding the "Governing Law" over the document should be defined regardless of its status. Fill in the blank space following the words "...Under The Laws By The State Of." with its name.
Step 14 - Ask the seller to sign an acknowledgment of your intention to transact
With the definitions provided, it will be time to execute the letter by signature. Otherwise, there is no legal basis for this letter. At the end of this letter, the seller must locate the "Seller's Signature" section. The seller should sign their names on the "Seller's Signature" line and indicate the "Date" of their signature. Upon signing and dating this letter, the seller must print their name below the "Print Name" field.
Step 15 - Delivery of the buyer's signature to validate the purchase agreement
labelledIn the final section, you need to pay attention to the "Buyer" signature. If the Buyer intends to buy the Seller's property or services, he or she must sign the "Buyer's Signature" line and indicate the current "Date" line immediately after signing their name. Upon signing this paperwork, the Buyer should provide the printed version of his or her name on the "Print Name" line to verify who is signing.