Letter of Intent: Commercial Transaction

by Practical Law Commercial Transactions

A letter of intent (LOI), also known as a memorandum of understanding (MOU) or term sheet, or less frequently in the US, heads of agreement or heads of terms, for a commercial transaction. Drafted from the buyer's perspective, this LOI serves as a basis for negotiating a future definitive agreement. It clarifies the parties' intentions by establishing that the core commercial terms are nonbinding, while other key provisions are legally enforceable. It includes common binding obligations related to the negotiation period, such as confidentiality, governing law, no third-party beneficiaries, and the allocation of expenses. The LOI sets a framework for the parties to proceed with discussions aimed at executing a definitive agreement, helping to identify potential deal breakers early in the process and focus negotiations. This Standard Document has integrated notes with important explanations and drafting tips.