Letter of Intent

As a general rule, letters of intent are not binding. Letters of intent are also referred to as “memorandums of understanding”. Letters of intent can be used to record a certain stage in the negotiations. For example, it can specify the issues subject to negotiation and the parties’ respective positions, as well as possible plans for continuation of the discussions. Consequently, a letter of intent may serve as a good basis for further negotiations. As a rule, it does not, however, obligate the parties to conclude a contract, or to continue the negotiations. The letter of intent may also contain some binding clauses, such as a confidentiality clause regarding information exchanged during the negotiations.

Letters of intent are often mistaken for preliminary agreements, which are binding. The validity of the contract is, however, not determined by its title, but by its content. A very detailed document entitled Letter of Intent, from which it can be concluded that the parties intended to commit to entering into a contract, may be regarded as a preliminary agreement. The Supreme Court has held that a document entitled Letter of Intent was, in fact, a binding preliminary agreement. For further information, see Preliminary Agreements [Preliminary Agreement].

Although letters of intent are non-binding, they may carry other legal consequences. The fact that the parties have concluded a letter of intent gives an impression of commitment and increases confidence in concluding the contract. In some, relatively rare circumstances, this may result in liability for costs if the final contract is not concluded. For further information, see The Basis of Liability in Contractual Negotiations [The Basis of Liability in Contractual Negotiations].