What an LOI actually does
A letter of intent lays out the proposed price and key terms of a transaction before the parties invest in negotiating a full purchase agreement. It signals serious intent and typically triggers an exclusivity period during which the seller agrees to stop marketing the business elsewhere.
Most LOIs are structured as primarily non-binding (the price and deal structure are stated as intentions, not enforceable commitments), while a handful of specific provisions inside the same document are explicitly binding.
Binding vs. non-binding provisions
| Provision | Typically | Why |
|---|---|---|
| Purchase price | Non-binding | Subject to diligence findings |
| Deal structure | Non-binding | May change during negotiation |
| Exclusivity / no-shop | Binding | Protects the buyer's diligence investment |
| Confidentiality | Binding | Protects sensitive information already shared |
| Expense reimbursement | Often binding | Allocates cost if a party walks without cause |
The two provisions that most directly affect sellers are exclusivity and confidentiality. Once signed, exclusivity stops you from marketing your business or talking to other buyers for a defined window (commonly 45 to 90 days) during which your negotiating leverage drops if the buyer decides to re-price or walk away.
When an LOI becomes a contract
Courts have repeatedly held that a document labeled "non-binding" can still be found legally enforceable if it's specific enough to constitute a complete agreement, and, just as often, that a detailed LOI is still found unenforceable if its own language shows the parties meant to formalize things later. In Cochran v. Norkunas, a 2007 Maryland Court of Appeals decision frequently cited in this area, the court held that a signed letter of intent for a property sale was not enforceable, because its own language showed the parties intended to paper a separate, more formal contract afterward. View the opinion on FindLaw ↗
The case arose in a real estate context, but Maryland courts have since applied the same reasoning to business sales: what matters is the actual wording on the page, read objectively, not which side later claims what they subjectively intended. An LOI that reads as a complete agreement can be enforced as one, however it's labeled, and one that clearly points to a future contract may not bind the parties even on terms it states in detail.
What to negotiate before you sign
- →The length of the exclusivity period: shorter is better for sellers; 45 to 60 days is often sufficient for a buyer to complete initial diligence.
- →A clear termination date and mechanism, so the LOI doesn't drag on indefinitely without a signed purchase agreement.
- →Whether expense reimbursement applies, and under what specific circumstances.
- →Explicit separation of which provisions are binding and which aren't. Ambiguity here is where disputes originate.