Benefits of Using a Letter of Intent in Your Commercial Dealings in England

As a business owner, you can drastically improve the quality of business relationships and the likelihood of facilitating a good commercial agreement by sending a letter of intent. The journey from a potential deal to a signed formal contract can be a complex one. In some cases, numerous documents will be exchanged between your business and the other party to progress negotiations. Some of these documents are not legally binding but solely exist to demonstrate that your business intends to enter into a future arrangement. One such document is called a letter of intent. This article will explore what a letter of intent is and how you can use it to benefit your commercial dealings.

What is a Letter of Intent?

Sending a letter of intent to another business demonstrates that you are interested in entering a legally enforceable agreement. It records your intentions to engage in negotiations in good faith without binding you to enter into future business transactions. Some businesses use letters of intent to signify to the other business that they should take the negotiations seriously. In contrast, other businesses tend to believe they are worthless. In a literal sense, both are true as a letter records the intention of one party as of a certain date.

Similar to how verbal comments between business owners during initial negotiations can carry weight, so can comments made within a letter of intent. Despite the letter not being legally binding, it can help progress negotiations and make a deal more likely.

Memorandum of Understanding

A letter of intent is not the same as a memorandum of understanding. A memorandum of understanding usually outlines the potential parameters of any future deal, with some including draft contractual clauses. Because of this, individuals use them later in the negotiation process. On the other hand, businesses use letters of intent in the early stages of the negotiation process. This demonstrates their genuine interest in a potential future agreement. 

Letter of Intent Template

There is no standard letter of intent template. You must tailor it to suit the situation. Where any initial negotiations have taken place, the letter is likely to include some details of any common ground. In other circumstances, the letter may simply state that there is an intention to explore a future deal. In practice, most letters of intent will at least spell out the names of the parties and a short description of their interests.

Example

Let us have a look at a quick hypothetical example. Suppose you have had a telephone conversation with a business owner who wishes to purchase goods from you. The other company expects to purchase ‘around 50 to 100 per month’, but nothing else was detailed. You are willing to speak with them in the coming weeks to see if they are serious about purchasing that many items regularly but are currently unsure of their interest in entering a future deal.

Within any letter of intent, you may find the other company simply providing their name and that they want to buy goods. Whilst rough estimates as to numbers are not suitable for a final contract, they can form the basis of a letter of intent. The document can also provide initial comments on when that business would wish to receive the first shipment. Although the letter may be vague regarding certain details, it demonstrates an interest in entering negotiations in good faith.

Key Takeaways

Letters of intent allow your business and another company to agree to explore potential negotiations. Furthermore, they can help demonstrate genuine interest on behalf of one party. However, as they are not legally binding, they do not prove more than initial intent alone. As such, they are a form of an olive branch and opening gambit rather than anything more concrete.

If you need help with letters of intent, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions

Are letters of intent mandatory?

No. They simply serve as a way to try and demonstrate to the other party that you have more than a fleeting interest in doing business with them.

Are letters of intent lengthy?

Letters of intent do not have to be long. Indeed, they only usually record a party being open to negotiations. Therefore, they tend to be pretty short.