What is a Letter of Intent (LOI)?
Introduction
A Letter of Intent (LOI) is a document used to outline the preliminary understanding between parties before finalising a formal agreement. It communicates the intentions of one party to enter into a business relationship, project, or transaction and sets the stage for negotiations. LOIs are common in real estate, construction, corporate transactions, and finance.
While a letter of intent expresses serious interest, it does not always create legally binding obligations. Understanding what a letter of intent and its proper use is, is essential for protecting interests, clarifying expectations, and reducing disputes during negotiations.
Definition
A letter of intent is a formal statement indicating a party’s intention to take a specific action, often as a precursor to a contract.
LOIs can clarify key terms, responsibilities, or preliminary agreements without constituting a full contract. Depending on wording and context, they can be binding LOIs or non-binding LOIs. In business, a LOI might outline investment plans, employment intentions, or real estate deals. In law, a letter of intent contract can serve as evidence of contractual intent.
In practice, LOIs are sometimes referred to as letters of intention, intent letters, or statements of intent. They are widely used to communicate intentions in finance, real estate and construction industries
Key Terms, Elements, and Clauses
A well-written LOI usually includes the following elements:
- Introduction or heading – Clearly identifies the LOI, the parties, and the purpose.
- Statement of intent – Outlines the general purpose of the proposed transaction or agreement.
- Key terms – May include preliminary details such as timelines, pricing, responsibilities, or conditions.
- Binding vs non-binding language – Specifies whether the LOI is legally binding or only an expression of intent.
- Confidentiality clauses – Protects sensitive information during negotiations.
- Conditions precedent – Notes actions that must occur before a formal agreement is signed.
- Signatures and approvals – Confirms the acknowledgment of the letter by all parties.
Including these clauses ensures clarity, protects interests, and establishes the framework for future contracts.
Types of Letters of Intent
LOIs can take various forms depending on the purpose and industry:
- Non-binding LOI – Expresses intent but does not create enforceable obligations.
- Binding LOI – Creates legal obligations for specific sections, such as confidentiality or exclusivity.
- Construction LOI – Used to initiate projects while formal contracts are being finalised.
- Real estate LOI – Summarises the terms of a property purchase, lease, or sale.
- Finance LOI – Signals intent to invest, lend, or engage in financial transactions.
When to Use a Letter of Intent
LOIs are typically used when parties want to:
- Outline preliminary agreements before drafting a full contract
- Clarify intentions in real estate, construction, or investment deals
- Set negotiation frameworks for mergers, acquisitions, or partnerships
- Document employment intentions or agency engagements
- Protect confidential information during early discussions
This clarity is why organizations rely heavily on bilateral contracts in sales, procurement, technology, staffing, and property transactions.
Benefits
Using an LOI provides multiple advantages:
- Clearly communicates intentions between parties
- Provides a roadmap for negotiations and contract drafting
- Helps avoid misunderstandings or disputes
- Establishes preliminary terms, timelines, and expectations
- Can include binding sections to protect sensitive aspects, even in otherwise non-binding LOIs
Common Risks
Some risks associated with LOIs include:
- Assuming an LOI is fully legally binding when it is not
- Ambiguous language that leads to disputes over intentions
- Overlooking key clauses such as confidentiality or conditions precedent
- Premature reliance on the LOI before the formal agreement is executed
- Confusion over terminology, such as letter of intent meaning in real estate or letter of intent in business
Letter of Intent vs Contract
A letter of intent is not the same as a full contract. While it may outline preliminary terms and intentions, it usually lacks the comprehensive obligations, remedies, and enforcement provisions of a contract.
- LOI = expresses intention, may include some binding provisions
- Contract = fully enforceable legal agreement with obligations, rights, and remedies
For example, in business or construction, a letter of intent may outline preliminary terms before the parties finalise a formal contract.
Examples in Different Industries
- Real Estate – A LOI summarises the terms for a lease or property purchase before drafting a formal purchase agreement
- Construction – A construction letter of intent may authorise preliminary work while contract terms are finalised.
- Finance – A finance LOI signals intent to invest or lend and may include binding confidentiality clauses.
- Business and Corporate – LOIs are used for mergers, acquisitions, or partnerships to outline preliminary agreements.
- Employment – Letter of employment intent communicates hiring intentions or offers.
Managing a Letter of Intent with Contract Corridor
Contract Corridor helps organisations manage LOIs efficiently:
- Create LOIs using guided templates for business, real estate, construction, or finance projects
- Track versions and maintain a full audit trail of approvals and changes
- Ensure consistency with binding or non-binding language
- Automate reminders for key dates, conditions precedent, or deadlines
- Store all LOIs and supporting documents in a central, searchable repository
- Integrate with Microsoft Word for drafting and tracked changes
- Reduce risk of misunderstanding by clarifying preliminary intentions and obligations
By using Contract Corridor, teams can strengthen their letter of intents,maintain transparency, and ensure negotiations and project kick-offs proceed smoothly.
Create, track, and manage LOIs with clarity and compliance.
Schedule a Demo of Contract Corridor to streamline drafting, approvals, and negotiation workflows.
