When is a Letter of Intent LOI Used
Understand when a letter of intent applies.
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A letter of intent (LOI) allows two parties to outline core terms before drafting a full legal agreement. Many business owners and buyers wonder when using an LOI is appropriate and how it impacts their deal.
This guide explains when an LOI is used, key provisions to watch for, and how the process works.
What is a Letter of Intent, and When You Should Use One in a Deal
A letter of intent (LOI) is used when two parties want to outline the key terms of a deal before signing a final contract. In Georgia and across the US, an LOI is common in business sales, real estate deals, and mergers. It signals serious interest and sets the stage for formal negotiations.
The primary purpose of a letter of intent is to establish a mutual understanding between parties regarding the fundamental aspects of a proposed transaction. By documenting these preliminary terms in writing, both sides can ensure alignment on price, conditions, timelines, and other essential deal elements before investing significant time and resources in drafting comprehensive legal documents.
This preliminary step helps prevent misunderstandings and provides a roadmap for the detailed negotiations and due diligence that typically follow.
In Georgia and across most of the US, LOIs appear most often in these situations:
- Business acquisitions — A buyer wants to lock down the basic terms before paying for due diligence.
- Commercial real estate — A tenant or buyer puts key deal points in writing before a full lease or purchase contract is drafted.
- Mergers and partnerships — Two businesses want to confirm alignment before investing time and legal fees.
- Joint ventures — Parties need a written record of their intent before forming a new entity.
- Employment agreements — An employer outlines compensation and role terms before a formal offer letter is prepared.
The right time to use an LOI is before you spend money on attorneys, accountants, or inspectors. It helps both sides spot deal-breakers early. If the core terms don’t work, you find out now, not after weeks of negotiation.
What Else You Should Know About LOIs
A letter of intent carries more weight in some deals than others. Several factors shape how binding it is, how long it lasts, and what risks it entails.
Here is what to watch for before you sign.
Binding vs Non-Binding Provisions
Most LOIs are not fully binding. But some parts often are. Courts in Georgia and across the US have found that certain LOI clauses can be enforced even when the rest of the LOI is not.
These provisions are typically binding:
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Confidentiality — both sides agree to keep deal terms private
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Exclusivity (“no-shop” clause) — the seller agrees not to talk to other buyers for a set time
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Governing law — which state’s law applies
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Cost allocation — who pays legal or due diligence fees if the deal falls through
These are typically non-binding:
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The proposed purchase price
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Planned deal structure
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Final closing conditions
Label each section clearly in the LOI itself. A vague LOI can create disputes about what either party agreed to.
For example, OCGA § 13-3-1 defines the foundational elements required for an enforceable contract in Georgia: competent parties, consideration, subject matter, and mutual assent. In LOI disputes, courts cite this section to determine if the parties intended to create a binding contract or merely a preliminary document.
How Long Does an LOI Last?
Most LOIs include an expiration date. This is the deadline by which both parties have to reach a final agreement or walk away. A typical LOI in a business deal lasts 30 to 90 days. Real estate LOIs may run shorter — often 14 to 30 days.
If the LOI has no expiration date, either party can usually end it with written notice. Set a clear deadline. It protects both sides and keeps the deal moving.
Key Risks to Watch
An LOI can create problems if drafted carelessly. Watch for these common issues:
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Ambiguous language — vague terms can be read as binding commitments
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No exit clause — without one, walking away may carry legal risk
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Premature disclosure — sharing sensitive financials before a confidentiality clause is signed
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Missed deadlines — failing to act within the LOI window can cost you the deal
Review every LOI with care before you sign. The details matter more than most people expect.
The LOI Process From Draft to Signature
A letter of intent typically moves through four to six steps from first draft to final signed copy. The timeline can range from a few days to several weeks, depending on deal size and how much the parties negotiate.
Step 1: Drafting
Usually, the buyer or the party making the offer writes the first version. This draft sets out the key deal terms — price, timeline, and key conditions.
Step 2: Draft Review
Each party reads the LOI carefully. They look for terms that may be binding and flag any language that needs to change.
Step 3: Negotiation Begins
The parties trade edits and markups. This stage can take a few days or stretch to two weeks on complex deals. The goal is to reach an agreed language before moving to a full contract.
Step 4: Legal Review
Each side should have an attorney read the final version before signing. An experienced business lawyer can spot which clauses are binding and which are not, and flag terms that could cause problems later.
Step 5: Both Parties Sign the LOI
Once the language is agreed upon, each side signs. In Georgia, most LOIs are signed informally — no notary is required — but the signed copy should be kept on file.
Step 6. Due Diligence and Formal Contract Drafting
The LOI is not the final deal. After signing, the parties move into due diligence and work toward a binding agreement.
Each step matters. Skipping legal review is the most common mistake and often the most costly.
When to Speak With an Attorney About an LOI
A letter of intent can shape a deal before any final contract is signed. If you are unsure whether your LOI is binding — or what terms you may already be locked into — speaking with a local business attorney can help you avoid costly mistakes.
The Chouhan Law Firm, LLC, serves clients in Atlanta and Cobb County and can help you review your LOI before it becomes a problem.
Contact us now to schedule an initial consultation.
Frequently Asked Questions
1. Can a letter of intent expire?
Yes, an LOI can include a set deadline — often 30 to 90 days — after which it becomes void. If no expiration date is written in, the parties may need to agree on when the LOI ends.
2. Does an LOI need to be notarized in Georgia?
No, Georgia does not require an LOI to be notarized. It is a pre-contract document, not a deed or formal legal filing.
3. What happens if one party walks away after signing an LOI?
In most cases, walking away from a non-binding LOI has no legal penalty. If the LOI contains binding clauses — such as exclusivity or confidentiality — breaching those terms may lead to a claim for damages.
4. Should an LOI be kept private?
Many LOIs include a confidentiality clause that keeps the deal terms private. Without that clause, nothing prevents either party from sharing the details.
5. Is an LOI the same as a memorandum of understanding?
Both documents serve a similar purpose — they record early agreement before a final contract is signed. The main difference is that a memorandum of understanding is more common in nonprofit or government deals, whereas an LOI is more common in business and real estate transactions.