What is a letter of intent?

A letter of intent is also sometimes called a letter of intention or memorandum of understanding, and acknowledges a willingness and ability of the parties to do business together. Letters of intent are intended to ensure that all parties have the same understanding and agree upon the terms and conditions of a proposed contractual relationship, prior to signing a legally binding agreement.

Is a letter of intent a legally enforceable contract?

A letter of intent is, in and of itself, not a contract and generally cannot be enforced as such, rather it is a document which constitutes an understanding between the parties and states the serious intent of the parties to carry out certain business activities. However, case law has recognized a number of situations where the parties to a letter of intent were treated as having respective rights and obligations. To be certain, it is best to seek legal advice before issuing a letter of intent.

Why bother with a letter of intent? Why not just draw up an agreement if the parties have already negotiated the terms?

There may be a number of reasons for preparing a letter of intent. A buyer who intends to purchase goods, supplies or property may want to ensure that the items he intends to purchase are reserved and remain available for purchase until the sale contract is completed. A property owner may want to issue a letter of intent for a construction contract in order to encourage the contractor to get things rolling before the formal contract is signed, in order to minimize delay in commencement of the work. Most importantly, a letter of intent indicates that each of the parties is committed to completing the deal.



The foregoing summary is provided for information purposes only and is not to be considered legal or business advice. The information may not be complete, accurate or applicable for any particular situation and should not be relied upon.