Letter of Intent for Commercial Transactions

Letter of Intent for Commercial Transactions

BS.DC.31

This Letter of Intent for Commercial Transactions is a general, quite simple form of letter of intent (“LOI”) for use where the parties to a proposed commercial arrangement:
• have had some, but not full, discussions about a proposed deal;
• have either reached a preliminary agreement on some (but not all) key points of it, or have not reached any preliminary agreement at all;
• are yet to negotiate and agree all of the legal and commercial terms and other details of the deal in full (which they set out in full in a definitive binding contract document);
• do not intend any work/services to be carried out before such a definitive contract comes into existence .

Since this LOI template does not provide for the possibility of such pre-contract work/services or steps preparatory to doing such work/services, if either party “jumps the gun” by doing any work, takes any other steps, or incurs any expense, in anticipation of a definitive contract being signed at a later stage, that party will be doing so “voluntarily” and at his own risk. In those circumstances, he will be unlikely to be able to recover payments for work done, steps taken, or expenses incurred by him, unless and until such a definitive contract comes into existence which provides for him to recover such payments. If you do however wish to make provision for some pre-contract work/services to be carried out and paid for while you are putting together your definitive contract for that and all other work/services, we have also provided the alternative form of Letter of Intent with Provision for Pre-Contract Services/Works.

Use of this LOI will help to ensure that, pending signature of a definitive contract, the parties are not legally bound by anything (either in the LOI itself or in, say, draft documents, emails, letters etc.) except for any points set out in the LOI which it says are to be binding, (e.g. the confidentiality clause in this template letter which will be binding until a definitive contract is signed). However, even if you use this template or any other form of LOI, you need to take care subsequently not to create any formal or informal document (or do anything else) which legally binds either party until you sign a definitive full written contract to which you are content to be bound.

The appropriate content both for the forms of LOI and MOU that we have provided (and for many other forms of LOI and Memorandum of Understanding (“MOU”) commonly used) will depend on their subject matter, the industry concerned, what is intended to be achieved by the document, timescales, and what the parties wish or need to do pending signature of a definitive contract.

The purpose of this template letter and the accompanying form of Memorandum of Understanding (Commercial Transactions) in this subfolder is similar to this LOI. However, this LOI is much shorter than that MOU, and it is more suitable than that MOU where:
• the proposed transaction has only been discussed in very basic outline;
• the intended transaction will not be complex or high value;
• the discussions on all aspects of the deal are fast moving; and
• it is likely that fairly soon after initial negotiations have begun, the full terms of the deal can be agreed and set down in a detailed formal contract to replace and supersede the LOI.

In those circumstances neither party will want to take up a disproportionate amount of time in agreeing and producing a detailed LOI or be distracted by it from working on the negotiation of a full and detailed definitive contract. Therefore, it should be fairly easy and quick to agree and sign this LOI. Once it has been signed, the parties can go on to provide information to each other, and, negotiate and resolve all matters before finally setting down full terms and other details of their deal in a definitive contract.

A preliminary document such as a letter of intent can provide a practical means of showing the intent of the parties to go ahead with a deal, reducing the potential for misunderstandings, and avoiding the parties becoming legally bound before they have fully negotiated a deal and set down the details in a formal binding contract. A LOI can be very useful, but it is incomplete by nature and can only set out the legal position of the parties on a temporary basis. It should therefore always be used only as a short term measure and then always be replaced by a definitive detailed contract as soon as possible. If it is not, the parties will be left in a very uncertain legal position which can lead to disputes and legal problems.

LOIs are also commonly known as “Heads of Terms”, “Memoranda of Understanding”, or “Term Sheets”, and such documents are often also headed “Subject to Contract” and/or “Draft Contract” but it is inadvisable to use such headings because of the legal uncertainty they create. It is important to recognise that any such titles or headings do not themselves establish the legal status or effect of the document: their legal status and effect will depend instead on all of the content of the document.

This Letter of Intent for Commercial Transactions contains the following clauses:
1. Definitions
2. Purpose and Status of LOI
3. Proposed Transaction
4. Ongoing discussions and negotiations
5. Confidentiality
6. Law and Jurisdiction

This document is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.

Optional phrases / clauses and notes are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

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