About Letters of Intent

A letter of intent is the blueprint to build a bridge of agreement between two or more parties. It's very similar to an actual written contract, but often it's non-binding. The logic behind a letter of intent is to solidify the details of a commitment before the binding contract can be created. This practice allows all parties the time needed to digest the details of the LOI, and the time to change or add concessions before the agreement is set in stone.

Function

A letter of intent (LOI) is also referred to as a memorandum of understanding (MOU). The purpose of an LOI is to simplify the key terms of a transaction that would otherwise be complicated. In addition, an LOI is an official declaration of negotiation, as well as protection for all of the parties involved if the agreement never reaches fruition.

Considerations

Even though a letter of intent is considered non-binding, there are certain stipulations that can add strength to the agreement. For example, if the document includes non-disclosure agreements, a promise of exclusive rights to negotiate or a good-faith agreement (which is protected by the Universal Commercial Code), the LOI could be deemed valid. When in doubt, it's best that the letter of intent include a clause stating the agreement is indeed "non-binding." (See Resources below.)

Types

LOIs are used for numerous agreements: business deals, education and academia, employment, persons with disabilities and government grants. The formalities of an LOI are the same in all of the agreements. However, the terms of the document will be different. For example, an LOI used for employment or a sales agreement will have different terms than an LOI used for graduate school or one between an athlete and colleges and universities. (See Resources below.)

Benefits

When a letter of intent is used as part of the application process for graduate school, it's often referred to as a "Statement of Purpose." At this time, the letter provides a platform for the prospective student to sell herself to a college or university.

Considerations

A special letter of intent can be used by a parent or family member to provide a caregiver with specific instructions for the well-being of a child. For example, a parent may create a special LOI for the caregiver when she's going away for the night or an extended period. The document will include the direction a caregiver should take if the guardian doesn't return for some reason.

Resources

• More About LOIs
• Non-binding LOIs
• Different Types of LOIs