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A letter of intent is a handshake in writing — and some of those handshakes are legally enforceable.

A letter of intent, or LOI, is a common early step in a business deal: a short document that lays out the proposed terms before lawyers draft the definitive agreement. People often assume an LOI is just a formality with no legal weight. That assumption is dangerous. While most of an LOI is typically non-binding, specific provisions are usually meant to bind — and unclear drafting can accidentally turn the whole thing into an enforceable contract. This guide explains what actually binds in an LOI and how to keep it from committing you to more than you intended.

We help businesses get this right from the start. This is general information, not advice on a specific situation.

A letter of intent is a handshake in writing — and some are legally enforceable.

What a letter of intent is

A letter of intent outlines the proposed terms of a deal — price, structure, timeline, and conditions — before the parties invest in a full definitive agreement. It signals serious intent and gives negotiations a framework. The Legal Information Institute’s overview of the law.cornell.edu describes it as a document expressing a commitment to move forward on outlined terms. Think of it as the deal’s outline: useful for alignment, but not yet the finished contract. How binding it is depends entirely on how it is written.

The danger isn’t the LOI; it’s an LOI that doesn’t say what binds.

What usually binds — and what doesn't

Most substantive terms in an LOI — price, structure, the deal itself — are typically non-binding, meant to guide the definitive agreement rather than lock it in. But several provisions are usually intended to bind immediately: confidentiality (protecting information shared during negotiations), exclusivity or “no-shop” clauses (preventing the seller from shopping the deal for a period), and often governing law and expense terms. A well-drafted LOI states explicitly which sections bind and which do not, so no one is surprised by what they actually agreed to.

How an LOI becomes accidentally binding

The risk arises when an LOI is silent or ambiguous about its binding effect. Courts look at the parties’ intent and the document’s language, and an LOI packed with definite terms and no disclaimer can be read as an enforceable contract — or as a binding obligation to negotiate in good faith. Conduct matters too: acting as though a deal is done can reinforce that reading. The way to avoid committing by accident is a clear, deliberate statement of what is and is not binding, drafted before anyone signs.

Using an LOI wisely

Used well, an LOI moves a deal forward without over-committing: it aligns the parties on major terms, secures confidentiality and a negotiating window, and sets a timeline — while preserving the freedom to finalize or walk away in the definitive agreement. The key is intentional drafting. Decide what you want to bind (usually confidentiality and exclusivity) and what you don’t (usually the deal terms themselves), and say so plainly. An LOI is a valuable tool when it reflects your intentions precisely rather than leaving them to interpretation.

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