Letter of Intent

Letters of intent (LOIs) are used to structure negotiations, particularly in company acquisitions, investments and large commercial projects. Memoranda of understanding (MoUs), heads of terms and term sheets serve similar purposes. It is the content and the parties’ intent, not the title, that determines the legal nature of these documents.

Typical Content

• Outline of the planned transaction (subject, price or valuation method, structure)
• Timetable and due diligence process
• Conditions precedent
• Binding provisions: confidentiality, exclusivity, costs, governing law and dispute resolution

Binding and Non-Binding Provisions

In practice, LOIs are hybrid. Commercial terms remain a non-binding statement of intent, while the following are expressly stated to be binding:

• Confidentiality: Protection of information shared in negotiations; see Non-Disclosure Agreement
• Exclusivity: Not negotiating with other candidates for a set period
• Costs and dispute resolution

Failure to state clearly which provisions are binding is the most common source of disputes.

Difference from a Preliminary Agreement

A preliminary agreement creates an obligation to conclude the main contract and contains its essential terms. A letter of intent generally creates no such obligation. If the document contains the essential terms and the parties acted with intent to be bound, it may be treated as a preliminary or main contract whatever its title.

Fault in Negotiations

Parties are bound by good faith during negotiations too (Turkish Civil Code Article 2). A party that creates justified reliance that a contract will be concluded and then breaks off negotiations without good reason, or conceals material information, may be liable for the other party’s reliance damages.