The Devil is in the Details, so be Careful When….

The Devil is in the Details, so be Careful When….

… using a Letter of Intent.

Depending on the sophistication of a transaction, the parties may decide to prepare a letter of intent before proceeding in earnest. The letter of intent is designed to lay out the core terms of the deal among the parties. Generally, a letter of intent is non-binding, except if the parties intend otherwise, either with respect to the agreement as a whole, or with respect specific provisions or terms. There are those who believe that spending any time on a non-binding agreement is a complete waste of time, while there are those who believe that the letter of intent is a good place to start. The idea of using a letter of intent has its value in that it allows the parties to “hash out” the substantive terms that are important to the deal. The process of negotiating the key terms quickly lets the parties know if there will be a meeting of the minds.

Often, the agreement is handled without lawyers. After the agreement is finalized, the terms are set for the lawyers to start drafting final document(s). There are some parties who negotiate letters of intent in great detail, which leaves little for lawyers to do. However, even with sophisticated parties, it is rare that all the issues are addressed. Depending, however, on the complexity of a deal, the lawyers may get involved in preparing and/or reviewing the letter of intent.

The parties to an agreement need to decide whether it is worth focusing on the details early. If so, it may be worth engaging the attorneys earlier on in the process. If the attorneys is engaged after the letter of intent is finalized, they may have limited ability in assisting their clients. If the idea is that the letter of intent is non-binding, then the parties may not want to spend too much time negotiating every detail because it could be “all for nothing.” If, however, the parties intend that the letter of intent is binding in any way, it may be advisable for lawyers to be involved early in the process while the parties are “hashing out” the terms. Before agreeing to spend too much time negotiating a letter of intent, make sure to understand the purpose of the letter of intent.

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