Do you know about…… Letters of Intent

Also known as ‘Heads of Terms’ or ‘Memoranda of Understanding’ a Letter of Intent is a document which can be used as a means of recording the progress of commercial negotiations in writing. They can be a useful tool for businesses wishing to formalise the stages between initial negotiations and completion.

What is it used for?

A letter of intent can be used as a form of confidentiality agreement to prevent a third party disclosing confidential information about your business during negotiations to others or to use it for any purpose other than the transaction;
As an exclusivity agreement or lock out agreement to ensure that parties to a prospective deal negotiate solely with each other for a period of time;
To cover costs incurred prior to entering into a final contract and compensate for costs incurred if one of the parties acts in breach of the agreed terms;
To cover the commencement of work or interim services provided pending further negotiations;
To provide an outline of the parties’ intentions as a solid structure for negotiating the main contract and to determine in advance the way in which another party operates both professionally and personally.

Is it legally binding?

The issue of a letter of intent’s legality can be problematic. If it is labelled ‘subject to contract’ it would appear that the parties do not intend for it to be legally binding until a further contract is entered into. However, case law has established that in some circumstances the parties’ conduct will have led to an implied binding contract on the terms of a letter of intent.

What to do next?

There are a number of legal points to consider before entering into a letter of intent such as its duration, legality, financial limits and scope of work covered. If you have a letter of intent in place or are considering entering into commercial negotiations and would like to talk to our team of Commercial Lawyers, please contact Penina Shepherd at Acumen Business Law on 08458 678978 or email penina.shepherd@acumenbusinesslaw.co.uk

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Do you know about…… Letters of Intent

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