Getting Clear on Letters of Intent

Business deals often start with big ideas—and bigger hopes. But turning conversations into commitments takes more than a handshake. That’s where a Letter of Intent, or LOI, comes in.

An LOI helps clarify what each side expects before anyone signs a formal contract. It’s not just a formality—it can be a critical piece of the negotiation puzzle.

Let’s examine how these documents work and why they matter more than most people realize.

What Is an LOI?

An LOI is a written outline showing that two or more parties want to proceed with a business deal. It’s often used in real estate, partnerships, or company sales to show serious intent without locking anyone into a final agreement.

It doesn’t always create legal obligations—but it does set the tone. It lays out the basic points everyone agrees on so far and shows there’s a shared interest in continuing the conversation.

Why People Use LOIs

LOIs are useful because they give both sides clarity. They spell out the goals, timeline, and key terms while negotiations are still unfolding.

Instead of rushing into contracts, an LOI gives room to explore the details. It shows good faith, starts to build trust, and allows each party to make sure the deal makes sense before moving further.

What Goes Into a Letter of Intent

The Core Ingredients

A solid LOI should clearly name the parties involved, define the scope of the deal, and summarize key terms—like pricing, deadlines, or goals.

Often, they also include:

• Confidentiality agreements, so sensitive info stays protected

• Exclusivity clauses, limiting negotiations with others for a certain time

The more specific the LOI, the smoother things tend to go later. Vague promises can lead to confusion—or worse, disputes.

Setting Ground Rules Early

While most LOIs aren’t binding overall, some sections can be. For example, promises to keep things confidential or negotiate in good faith might be legally enforceable.

That’s why language matters. If a term sounds final or definite, courts might treat it as such—even if that wasn’t your intention.

Why LOIs Can Make or Break a Deal

Creating Clarity and Alignment

LOIs help make sure everyone’s on the same page. They outline what the deal should look like, who’s doing what, and when things need to happen.

When the pressure is on, having this roadmap can keep negotiations focused and productive. It helps prevent surprises that derail discussions down the road.

Reducing Risk Up Front

Getting the basics down early allows both sides to spot red flags or deal-breakers before they commit too much time or money.

If problems come up, it’s easier to adjust or walk away cleanly. If everything moves forward, a well-drafted LOI provides a solid base for a formal agreement.

Legal Issues to Watch For

When an LOI Becomes Binding

Just because it says “letter of intent” doesn’t mean it’s always non-binding. Courts look at the wording and how the parties behaved.

If the LOI includes firm terms like pricing or deadlines—and both sides acted like they already had a deal—it could be enforced like a contract.

The Danger of Being Too Vague

One of the biggest risks with LOIs is writing them too loosely. If terms are unclear or misunderstood, you could wind up in a dispute before the contract even takes shape.

Ambiguity leaves room for interpretation, and in legal disputes, that’s rarely a good thing. It’s why legal review matters, even at the early stages.

How to Write an LOI That Works

Focus on What Matters

Good LOIs strike a balance: detailed enough to show intent, but flexible enough to allow room for negotiation.

They clearly define what’s binding and what’s not. They avoid casual or confusing language. And they break things into sections so everyone can follow along.

Stay Open and Communicative

A strong LOI comes from honest communication. Both sides should feel confident speaking up if something seems off—or if new information changes the deal.

That back-and-forth is what turns a rough outline into a real, workable agreement.

From Letter of Intent to Final Agreement

Be Ready to Adjust

As discussions progress, it’s normal for the original LOI to evolve. Maybe the price changes. Maybe new terms are added. That’s part of the process.

Revisions should be documented carefully so everyone knows what’s been agreed to along the way. That paper trail matters if problems arise later.

Final Steps Before Signing

Eventually, once the key details are nailed down, the LOI becomes the foundation for the formal contract.

At that point, legal review is critical. Even if the LOI was casual, the final agreement locks in legal obligations—and can carry major consequences if it’s unclear or one-sided.

Take the Next Step With Confidence

Letters of Intent may seem informal, but they can carry serious weight. Whether you're preparing to buy, sell, or partner up, starting with a strong LOI can make all the difference.

At Tomczak Law, we help clients draft LOIs that are clear, effective, and aligned with their goals. We work closely with individuals and businesses to protect their interests before the ink dries on a final contract.

Call (602) 207-8672 today to speak with our legal team and take control of your next big business step.