Risk that a Letter of Intent is already the final agreement to be concluded

When parties enter into negotiations about a potential agreement to be concluded, parties often conclude a Letter of Intent ('LoI'), also known as a Letter of Intent or Memorandum of Understanding. When drafting a LoI, it is wise to consider what the legal consequences might be. After all, the title at the top of the document is not leading for its legal meaning, the content and how parties behave in relation to it is. Thus, the LOI may unintentionally already qualify as the final agreement to be concluded.

Points to consider when drafting an LoI so as to avoid, as much as possible, that it inadvertently already qualifies as the final agreement to be concluded include:

1. Expressly include in the LoI that the LoI never qualifies as the agreement to be concluded.
2. Explicitly include in the LOI that the parties are in the negotiation phase until the final agreement to be concluded is (i) in writing and (ii) signed by the parties.
3. Make sure that from the LoI there is no promise or offer. This can be achieved by including words in the LoI such as 'intent', 'intend' and 'intention' instead of 'agreed' and 'agreed'.
4. If and to the extent that there is already agreement on parts of the agreement to be concluded - such as price, quantity, delivery date, etc. - then these parts can be left out of the LoI. If the parts agreed upon are included in the LoI, there is a chance that the LoI already qualifies as the final agreement to be concluded. In that case, there is less reason to still conclude a further agreement.

If you are planning to draw up an LoI, engage an advisor who can help you do so. Our lawyers at Team Commercial Contracting will of course be happy to help you with this.