What Is Letter of Intent (LOI)?

LOIs serve multiple functions: they signal serious intent, establish a negotiating framework, and create a roadmap for due diligence and definitive documentation. In M&A transactions, the LOI sets the purchase price, structure (asset vs. stock), earnout terms, exclusivity period (no-shop clause), and major conditions. In commercial real estate, the LOI establishes rent, lease term, tenant improvement allowances, and options before the full lease is drafted. The non-binding nature of most LOI terms is frequently misunderstood — courts have occasionally found LOIs to create binding obligations when they are sufficiently specific and the parties behaved as if a deal was struck. Clear disclaimer language ('this LOI is not binding except as to sections X, Y, Z') is essential. Exclusivity and no-shop clauses in LOIs are binding and prevent the seller from soliciting competing offers during the negotiation period — often 30–90 days.

Signing an LOI without legal review can inadvertently bind you to unfavorable terms or lock out competing offers at a critical negotiation stage. An attorney can review LOI terms, ensure non-binding provisions are properly disclaimed, negotiate exclusivity windows, and structure terms that protect your position as you move toward definitive documents.