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Christy Bieber is a personal finance and legal writer with more than a decade of experience. She earned her JD from UCLA School of Law and was an adjunct professor at the start of her career, teaching paralegal studies and related courses. In addition to writing for the web, she has also designed educational courses and written textbooks focused on a variety of legal subjects.
Christy Bieber is a personal finance and legal writer with more than a decade of experience. She earned her JD from UCLA School of Law and was an adjunct professor at the start of her career, teaching paralegal studies and related courses. In addition to writing for the web, she has also designed educational courses and written textbooks focused on a variety of legal subjects.
Adam Ramirez has been writing and editing about the law and legal issues for more than 20 years. After earning a law degree from the University of Arizona, he clerked for two years for a U.S. District Court judge. He researched and wrote legal precedent in published opinions on behalf of the Court. He previously was an editor, columnist and journalist at the Miami Herald, The Dallas Morning News, The Oregonian, Golf Digest, FindLaw.com and other media outlets.
Adam Ramirez has been writing and editing about the law and legal issues for more than 20 years. After earning a law degree from the University of Arizona, he clerked for two years for a U.S. District Court judge. He researched and wrote legal precedent in published opinions on behalf of the Court. He previously was an editor, columnist and journalist at the Miami Herald, The Dallas Morning News, The Oregonian, Golf Digest, FindLaw.com and other media outlets.
Editorial Note: We earn a commission from partner links on Forbes Advisor. Commissions do not affect our editors’ opinions or evaluations.
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A letter of intent (LOI) is used to indicate your desire to commit to a binding agreement. The LOI sets the stage for negotiations and shows you are serious about creating a good faith contract to do business with others in some form.
If you need to create this document, it can be hard to know where to start. A template makes it easy to specify all the details of your agreement. Enter your email address below to receive a free letter of intent template.
What Is a Letter of Intent?
This is a simple document that you use to indicate you intend or plan to negotiate a contractual agreement with someone else. Letters of intent are used frequently in business and real estate transactions when a very complex deal must be negotiated.
The LOI is a preliminary document that you can use to create a roadmap for how negotiations will proceed and what a finished agreement might look like.
These letters are not legally binding. They do not obligate you or anyone else to do anything. Instead, they show that you intend or desire to reach a binding agreement and will negotiate in good faith in order to do so.
When Should You Use a Letter of Intent?
There are many situations when using a letter showing your intentions to negotiate makes sense. Here are some examples of circumstances where you may want to create a LOI:
- When you are buying or selling real estate. If you are entering into a complicated real estate transaction, or if you need more time before a final real estate purchase/sales contract can be reached (perhaps because of a need to secure financing), you can draft a LOI. This letter outlines the terms of a final purchase/sale agreement so one can be drafted easily later.
- When you are entering into a lease agreement. When a tenant intends to rent a property but the parties are not yet ready to move forward with a full rental agreement, a written letter shows what a rental arrangement would look like and expresses a desire to enter into a rental arrangement in the future.
- When you are buying or selling a business or shares in a business. Many details need to be hammered out when business ownership changes hands. A letter can be used to outline the framework of the deal and show that efforts are being made to transfer ownership of the company.
- When you are buying or selling goods. If items are to be sold but cannot be sold immediately or if more details about the terms of the sale must be negotiated, you can use a letter to outline what the eventual purchase will look like.
- When you are forming a partnership. Many terms must be agreed upon before forming a partnership. You can draft a letter showing that parties want to be partners which helps them negotiate a final partnership agreement.
- When someone will be doing contract work. If a company or individual is hiring a contractor, a LOI may be created before a service contract if the work will be done in the future or if some terms of the business relationship must still be negotiated.
The template created by Forbes Advisor can be customized to your particular situation so you can explain the terms of the transaction that you wish to enter into.
What Should a Letter of Intent Include?
It should include certain specific details in order for it to serve its purpose as a useful document that establishes a desire to enter into a transaction. Here is some of the information that a LOI should generally include:
- The names and addresses of all of the parties that will be part of the final agreement
- Details about the transaction that the parties will enter into in the future agreement. For example, the LOI should specify which assets will be purchased or sold, what a partnership would look like or what real estate would be sold or leased
- Any terms that the parties have already agreed upon. If the parties have agreed a lease will last for 10 years but are still hammering out the other details, the LOI would specify that the parties intend to enter into a 10-year lease
- Any conditions that must be met before a final agreement is reached. These conditions vary depending on what the letter signifies. If a buyer must obtain financing before moving forward with a purchase, for example, this would be a condition specified in the initial letter
Using a template helps you to quickly and easily determine what kinds of information should be contained in your LOI.
You’ll also want to think about the purpose of the document. Ultimately you want the letter to explain what you intend or plan to do as that is the entire reason for this document’s existence.
Is a Letter of Intent Legally Binding?
This document signals an intent or a desire to move towards a legally binding agreement. The document itself is not legally binding and unless you ultimately negotiate a successful deal, you will not accomplish your intentions outlined in the letter.
Frequently Asked Questions (FAQs)
How do I write a letter of intent?
To write this document, determine the purpose of your desired future agreement. Consider any terms you have already agreed upon and conditions that must be met before a final agreement is in place. Draft a letter outlining your desire or intent to negotiate a final agreement on a purchase, partnership or other transaction. A template helps with this process.
Can you write your own letter of intent?
You can write your own letter of intent. This letter is not legally binding but instead signals an intention or desire to enter into a legally binding agreement in the future. If you understand what your goals are for a future transaction, you can include them in a LOI. A template helps you to easily draft a letter that starts negotiations off on the right foot.
What does a good letter of intent include?
You should include the names and contact details of the parties to a future transaction or future agreement. Include a description of the intended future business the parties tend to engage in together, such as forming a partnership or participating in a real estate sale. Use the document to detail any terms the parties have already agreed on, establish conditions that must be met for a future agreement and set the stage to negotiate a binding contract.
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