Letter of Intent (Heads of Terms)

What it is

A letter of intent (LOI), term sheet or heads of terms records the main commercial points the parties intend to agree and frames the negotiations. It is usually mostly non-binding, but certain provisions (confidentiality, exclusivity, costs and governing law) are normally made binding.

Why it matters

An LOI aligns expectations early and protects sensitive information during talks. But under Dutch precontractual good-faith doctrine (HR Plas/Valburg), breaking off advanced negotiations can create liability, so the document must state clearly what is and is not binding.

How to apply it

• State explicitly which clauses are binding and which are subject to contract.
• Make confidentiality, exclusivity and cost allocation binding from signing.
• Add an expiry date and conditions (e.g. due diligence, board approval).
• Address how either party may break off negotiations and bear its own costs.

Negotiation tips

• • Be explicit that the LOI is non-binding except for named clauses, to limit Plas/Valburg risk.
• • Use an exclusivity (lock-out) period to prevent the other side shopping the deal.

Common pitfalls

• • Drafting an LOI that, despite its label, is so detailed it reads as a binding contract.
• • Breaking off advanced negotiations carelessly and incurring precontractual liability.

Legal references

• Precontractual good faith (HR Plas/Valburg)
• BW 6:248 Reasonableness and fairness Dutch law

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.