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Develop Phase: Preliminary Agreements - Letters of Intent

3 important questions on Develop Phase: Preliminary Agreements - Letters of Intent

What is the purpose of a letter of intent (LoI)

To identify and document the key business and contractual issues that will form the basis of a formal contract.
A great deal of obligation and liability can arise with their use.

In what situations is a LoI used?

If a LoI is truly necessary it it should be drafted to reflect no more commitment than intended, should contain a limit of expenditure, should include or incorporate by reference both standard terms and conditions, and should contain a clear date, at which time unless replaced by a contract, the Letter Intent will expire.

What is a paradoxical contradiction about LoI?

Letters of Intent are frequently intended to be non-binding, but they because contain all the elements of a contract they may prove binding on the parties.

--> If the parties do not intend the letter of Intent to be binding, it must be explicitly stated. If the Letter of Intent stays silent whether it is non-binding, then it is presumed to be binding and enforceable in the courts.