Letter of Intent – Definition

Cite this article as:"Letter of Intent – Definition," in The Business Professor, updated March 25, 2019, last accessed October 20, 2020, https://thebusinessprofessor.com/lesson/letter-of-intent-definition/.


Letter of Intent Definition

A letter of intent is a statement of understanding between two or more parties. It describes the concerns arising from the suggested deal by validating the steps that are to be implemented.

The letter of intent is generally not enforceable as a contract. Rather, it simply indicates the intentions of the parties to pursue negotiations and enter into a future agreement.

The letter of intent can also be referred to as a ‘pre-contract’ or a memorandum of understanding.

A Little More on What is a Letter of Intent

A letter of intent commonly termed as Lol in the legal field is a paper that outlines one or two consensuses arising from two or more entities before the finalization of the agreement. The concept of the letter of intent matches that of heads of agreement, memorandum of understanding or term sheet. Such recorded consensus may be as a result of transaction agreements emanating from acquisitions and mergers, agreements of joint ventures, real property lease contracts and other kinds of contracts regarding transactions of materials and properties.

The following are the main roles of a Letter of intent:

  •         It enables the concerned parties to draw the terms before they can spend their money in these contracts, conducting due diligence, following confirmation from the third parties amongst others.
  •         To officially put down the negotiating parties like in the case of proposals of joint venture and mergers.
  •         To provide measures to take care of deal gone sour in the process of negotiating.
  •         To clarify and raise concerns relating to the payments made for instance credit card payments.

Negative Aspects of Letters of Intent           

The parties to the deal may be involved in long and lengthy negotiations depending on the terms of the deal.

  •         The time for management and focus may be changed.
  •         During negotiations, other potential opportunities may be missed as the markets may not favor the parties involved.
  •         In case the deal does not materialize, the parties in the equation may lower their expectations with the hope of progressing in the future.
  •         Obligations regarding public disclosure may be triggered accidentally.
  •         The dangers associated with the need of some individuals to sell the letter of intent to other stakeholders or to the world.

In the field of academia, a letter of intent forms part and parcel of the application procedure and may be referred to as an application essay. In the United State’s field of education, these letters of intent also occur between secondary school senior athletes and colleges or universities. This letter of intent reserves an athletic scholarship for athletes once they complete high school. In addition to this, before the formation of student club can be confirmed, a school administrator in secondary education will need a letter of intent.

References for Letter of Intent

Academic Research on Letter of Intent

Letter of intent: A comparative examination under English, US, French and West German law. Lake, R. B. (1984). Geo. Wash. J. Int’l L. & Econ., 18, 331.  The author in this article is concerned with looking into the letter of intent by comparing them with different nations with different laws such as French, West Germany law, and English.

The original understanding of original intent, Powell, H. J. (1985). Harvard Law Review, 885-948. The article is concerned with how judges understand refer to “original intent of the framers” to match their understanding. There have been a lot of arguments that that kind of strategy for interpretation is nowadays desired and also was the hope of early interpreters and constitutional drafters. In addition to this, Professor Powell investigates the historical claim that constitutional drafters depended on future translators to derive meaning from the framers intent. In addition to this, the author summarizes by claiming that the “intent of the framers received no support and that it was not the appropriate plan.

Devil’s Advocate: Salvaging the Letter of Intent, Klein, A. R. (1988). Emory LJ, 37, 139. The author in this article is concerned with how the letter of intent is perceived. Most People have this notion that letters of intent are not binding except when the parties involved want them to be understood as contracts.

The NCAA letter of intent: A Voidable agreement for minors. Burke, D. D., & Grube, A. J. (2011). This section highlights to us the appropriate age limit that minors must have in order to approve an agreement or a contract which was entered into at a time that they were young. At this stage, the contract does not become voidable.

Letters of intent under recent Belgian case law, De Ly, F. (1991). Int’l Bus. LJ, 566. The author informs us that in Belgian, a letter of intent is used in most of the transactions. In addition to this, the author goes ahead to claim that a letter of intent can either be binding or not binding depending on certain situations.

Precontractual Liability and the Duty of Good Faith Negotiation in International Transactions, Klein, J., & Bachechi, C. (1994). Hous. J. Int’l L., 17, 1. This article is concerned with liabilities that arise before the contracts and how negotiation based on good faith not only enhances international trade but it also has the capability to encourage global transactions amongst different parties.

Letter of Intent-An Agreement to Agree, Krause, C. F. (1978). NY St. BJ, 50, 474. The author in this section describes the letter of intent as an agreement or agreements to agree between the parties involved which may be two or more parties.

Contract formation and letters of intent. Furmston, M. P., Norisada, T., & Poole, J. (1998). This article investigates practices and attitudes regarding the appropriateness of negotiation documents across nations and different places. The author talks about aspects that influence how effective are the specific pre-contractual certificates and assist advocates acting on behalf of national and international firms to come up with contracts that are appropriate.

Letters of Intent in Commercial Real Estate, Poindexter, G. C. (2000). Real Estate Law Journal, 28(3), 195-201. Letters of intent has been used by investors who would like to purchase real estate properties. They prefer using this letter of intent so that it acts as a bridge linking the buyer and the seller of the property in question

Letters of Intent—A Trap for the Unwary, Homburger, T. C., & Schueller, J. R. (2002). Real Property, Probate and Trust Journal, 509-535. The paper describes how those people who are not very familiar with the letter of intent have found themselves trapped in some deals that the person may find himself or herself.

The Intent Element of Induced Infringement, Holbrook, T. R. (2005). Santa Clara Computer & High Tech. LJ, 22, 399. The author suggests that there have been different thoughts in the Federal Circuit; intent with acts amounting to infringement or intent that induce infringement. The author asserts that an intent inducing infringement is the appropriate standard due to the unique nature of its contribution.

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