# Letter of intent

Source: https://contracko.com/glossary/letter-of-intent

# Letter of intent

A preliminary document recording parties' intent to negotiate or conclude a future agreement.

## Definition

A letter of intent (LOI) records the parties' intention to enter into a transaction and often sets out the main points and the process for negotiating the definitive contract. Some provisions are usually binding (confidentiality, exclusivity, governing law) while the deal terms themselves are typically non-binding. Under Dutch law, however, parties in advanced negotiations are bound by good faith, and breaking off negotiations may give rise to liability for costs or even lost profit (the Plas/Valburg doctrine).

## Example

> Before a complex acquisition, the parties sign a letter of intent fixing exclusivity and confidentiality while leaving the purchase price subject to due diligence.

## Why this is a business risk

An LOI that is vague about which provisions are binding and which are not creates legal uncertainty: a party may believe they are still free to walk away while the other considers the deal effectively done. Lengthy exclusivity periods lock the buyer into one counterparty, creating significant opportunity cost if due diligence reveals problems. Under the Plas/Valburg doctrine, walking away from advanced negotiations can trigger liability even when the LOI says the deal is non-binding.

## How to manage it

- Mark each provision in the LOI clearly as "binding" or "non-binding" and include an explicit statement that the remainder of the LOI does not create a binding obligation.
- Set a realistic exclusivity period with a clear end date and, if it expires before the deal closes, a renewal process.
- Include a long-stop date by which the definitive agreement must be signed, so neither party is indefinitely locked into negotiations.
- Once an LOI is signed, store it alongside the eventual definitive agreement so the negotiation history is accessible if a dispute arises.

### How Contracko helps

Contracko stores LOIs in the same repository as the definitive contracts they precede, linking the documents so the full negotiation trail is visible. Expiration reminders on exclusivity and long-stop dates prevent an LOI from running on silently, keeping both parties alert to the decision points in the deal process.

## Legal references

- [BW 6:248 Dutch Civil Code: reasonableness and fairness (precontractual good faith) Dutch law](https://wetten.overheid.nl/BWBR0005289)

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.

## Relevant for

[Financial Services](https://contracko.com/industries/financial-services)[Legal Services](https://contracko.com/industries/legal-services)[Consulting](https://contracko.com/industries/consulting)[Pharmaceuticals & Biotech](https://contracko.com/industries/pharma-biotech)

## Related clauses

- [Letter of Intent (Heads of Terms)](https://contracko.com/clause-library/letter-of-intent)
- [Confidentiality Clause](https://contracko.com/clause-library/confidentiality)
- [Exclusivity Clause](https://contracko.com/clause-library/exclusivity)

## Related terms

- [Good faith](https://contracko.com/glossary/good-faith)
- [Collaboration agreement](https://contracko.com/glossary/collaboration-agreement)
- [Due diligence](https://contracko.com/glossary/due-diligence)
- [Confidential information](https://contracko.com/glossary/confidential-information)

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## Frequently asked questions

Common questions about this term.

- **Q:** Is a letter of intent legally binding?
  **A:** Usually only in part: clauses like confidentiality and exclusivity are meant to bind, while the commercial terms are non-binding. The exact effect depends on the wording and the parties' intention.

- **Q:** Can a party freely walk away from negotiations after signing an LOI?
  **A:** Not always. Under the Plas/Valburg doctrine, breaking off advanced negotiations may be contrary to good faith and lead to liability for costs or, exceptionally, lost profit.

- **Q:** What should an LOI say to make its non-binding nature clear?
  **A:** It should contain an explicit clause stating that, except for specified provisions (confidentiality, exclusivity, costs), the LOI does not create any legal obligation to enter into the definitive agreement and either party may withdraw from negotiations at any time.

- **Q:** How long should an exclusivity period in an LOI last?
  **A:** Typically between four and twelve weeks, depending on the complexity of due diligence. The period should be long enough for the buyer to complete its review but not so long that the seller is locked out of other interest for months without certainty.

- **Q:** Does signing an LOI trigger any disclosure obligations?
  **A:** For listed companies, a signed LOI may constitute inside information requiring disclosure under MAR. Private companies should also consider whether the LOI needs to be notified to key stakeholders, lenders or regulators under existing agreements or licences.

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