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Making an Agreement to Agree – Letters of Intent

Letters of Intent (LOI) are used on a regular basis to spell out basic terms of an agreement prior to actually entering into a full and complete agreement. Most often we see LOIs in relation to commercial lease agreements, commercial sales agreements, and other commercial transactions. LOIs can be binding or non-binding. If they are non-binding, you have no agreement you can enforce. If the LOI is binding, a court may be able to determine and rule that your Agreement to Agree is truly a contract.

LOIs can be a valuable tool to either start, enhance or conclude your negotiations of a substantive contract. They allow you to outline the monetary and time portions of an agreement, along with other material components such as the location of your leased property, the identification of the asset being acquired, or the subject matter of a merger or acquisition.

Aside from the basic deal points, what else should you include in a LOI? First, you must know whether the LOI is binding or non-binding. There has been substantial and expensive litigation over whether the parties are bound to an LOI. If you do not want it to be binding, include language that states, “There will be no binding contract unless or until the parties sign a written contract.”

You should include language stating that the deal points and negotiations are confidential and that the information received in the negotiations is subject to a Non-Disclosure Agreement (NDA). Gordon Law can help you to create an NDA for your particular transaction.

Depending on the type of transaction considered and the ongoing negotiations, you may need language in your LOI stating that the parties are engaged in exclusive negotiation. This will prevent one party from negotiating what appears to be a deal and then taking that “deal” to a third party to obtain better or different terms.

Finally, the LOI should have an expiration date. This will accomplish several things. It will set a specific time period for the parties to reach a substantive agreement. Collateral to that it will keep the parties actively negotiating and preventing the deal from withering on the vine.

Whether you need to have an LOI drafted or reviewed, Gordon Law remains committed to assisting you. If you have already entered into an LOI, Gordon Law can assist you in the drafting or review of the substantive contract.

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