Letters of Intent are not supposed to be legally binding contracts. However, that does not mean that they are not important to a business’s legal interests.
In significant projects and transactions, New York businesses will frequently use a Letter of Intent, or LOI. Addressed to another business, the LOI will set out at a high-level what the businesses are wanting to accomplish by working together. For example, if one business is wanting to purchase the other business, the LOI will spell that out.
The LOI also sets some ground rules for the businesses’ relationship as they move forward with their negotiation. For example, the LOI may spell out what items require discussion and establish deadlines to make sure negotiations stay on track.
Importantly, an LOI also may include agreements about confidentiality and some basic rules of fair play between the businesses.
LOIs are not supposed to be contracts. LOIs are supposed to set out what a final contract between two businesses might look like, but the businesses involved in negotiation in theory remain free to walk away from discussions if they are not satisfied.
There are good reasons why legal counsel usually draft an LOI
A business in the Albany area is usually well-advised to have legal counsel negotiate and draft an LOI whenever an organization is entering an important deal.
Businesses can accidentally enter a binding agreement through an LOI if they are not careful about how they proceed. Moreover, parties usually intend some commitments in an LOI, like with respect to confidentiality, to be enforceable agreements. Furthermore, even if an LOI is not a binding agreement, it can still be used in certain legal proceedings.
Practically speaking, a good LOI can spell the difference between a smooth negotiation and one that winds up wasting a business’s resources and costing the business valuable other opportunities.