The content of the article:
- What is a Letter of Intent (LoI) is?
- Delimitation of the preliminary contract
- Content of Letter of Intent
- Letter of Intent: advantages and disadvantages
-
Conclusion and template
What is a Letter of Intent (LoI) is?
The Letter of Intent, also LoI or Memorandum of Understanding (MoU) is a
non-binding Declaration of intent between buyer and seller. Through him, it is confirmed that both sides are in negotiations on the conclusion of a contract. Although the LoI is often the basis for subsequent treaties, he justified claims shall have no Right. It is not a contract, since no binding effect arises.
Even if the Letter of Intent can only be one-sided fixed, so he is characterized, in practice, often by both parties.
He serves the state of the negotiations and their seriousness legally binding hold. Individual provisions, however, are for the agreed duration of the binding, such as, for example, exclusive of the clauses or non-disclosure agreements. Nevertheless, no obligation, and no claim on completion of the intended contract arise.
Areas of application of this Memorandum of understanding are, for example, in the run-up to an acquisition, software agreements and collaborations, the v. a. large-scale projects relate to.
Soft LoI
The soft Letter of Intent confirms only that the parties in contract negotiations and illustrated their points of view. This Form of the statement of intent can be understood as a contractual partner, as a unilateral statement, the negotiating positions of the Exhibitor again. Therefore, it is a soft LoI is not legally binding, because of the legal consequences of the will of the parties , and contains a maximum of individual regulations, such as exclusive clauses.
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Hard LoI
Is the Declaration of intent, the content of concrete and contains legally binding declarations, so it is called a hard Letter of Intent. This must, however, relate to the essential elements of the Contract – such as, for example, the object of the purchase or payment of the purchase price. Of binding except in the ancillary agreements, which are also found in the soft LoI (e.g. confidentiality clause). Even if the parties have obligations in the case of a hard LoI protection and Care, so it is not a pre-contract.
Delimitation of the preliminary contract
A feature of the Letter of Intent is that it is a mere Declaration of intent , and thus, no binding effect. Therefore, the LoI is to be distinguished from a pre-contract in which the parties to the conclusion of the main contract are required.
The pre-contract already includes the essential elements of the Contract of the later part of the main contract and, therefore, the parties, the implementation of forced. This does not happen, it can come at the pre-contract to the indictment. In the LoI, however, this is not the case.
Therefore, when drawing Up a Letter of Intent, or even of a preliminary agreement on the content to watch. Alone, the designation is not sufficient to make the Declaration of intent is non-binding. Reflects the contents of the LoI, in addition to the main contractual arrangements with the relevant legal binding will of resistance, so it may be already a binding pre-contract, or the main contract. Even if the parties to the letter of intent is not binding handleby, for example, the other party at the Start of their performance, urge, one speaks of a related or the main contract.
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Content of Letter of Intent
The contents of the LoI should the parties to the contract as detailed and specific as possible to formulate. Because only in this way can be built up in the run-up to a fairly significant level of trust between the parties and subsequent disagreements can be prevented.
The following trick will be called points, the important content of a Letter of Intent can be identified:
- Negotiating partners and their representatives
- Subject: What do the parties, with the LoI reach?
- Schedule: when to use which step have been reached to be? When and how often you hold consultation about it?
- Exclusivity: the parties to exclusively negotiate with each other?
- Confidentiality: a confidentiality obligation as may be agreed?
- Term: when is the latest one overall agreement be reached? When the LoI automatically?
- Cost: As to any costs incurred by regulated?
- Miscellaneous: What to look for in the final provisions (e.g. Severability clause)
Letter of Intent: advantages and disadvantages
As with any statement of intent the Letter of Intent pros and cons with it. Basically, it is to be noted that the LoI can be a valuable tool in preliminary negotiations, but it needs to be reviewed.
Advantages of the LoI
An advantage of the LoI is the small, but necessary legal protection. The binding confidentiality clauses to protect, for example, sensitive data, or the intellectual property of the company. Also, the time Schedule and the prices laid down in the Letter of Intent specifies and makes a future contract clearly tangible.
Another plus point is the good log function in negotiations. Through the protection Declaration can be easily tracked, who has something to discuss when and where and are the most important points of discussion can be held on to.
Thus, there is a strengthening of mutual trust, because of the misunderstandings out of the way gone, and the constant exchange with the contract partner is excited.
Disadvantages of the LoI
Behind a Letter of Intent hides a high expenditure of time, which is also with high cost associated can. Because of the degree between a non-binding Declaration of intent, and a binding contract is usually so narrow that in case of doubt, a lawyer must be consulted.
Since the LoI is non-binding, is no legal security for a definitive conclusion of the contract is given. The Declaration of intent can also unsuccessfully run out, although they are more correspondence than usual contract negotiations requires.
In addition, however, the lack of awareness of the Letter of Intent in German-speaking countries. As a result, a higher Declaration is required in the potential Bargaining or contractual partners.
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Conclusion and template
The Letter of Intent provides the parties to the contract is a good way to fix the further steps planned, without any obligation on the Partner directly to the conclusion of the contract. The organizational and temporal conditions also form a useful basis for the intended conclusion of the contract.
In addition, the exclusivity offer agreement, you should confidentiality obligations and the costs of control, a solid basis of trust for both parties, why is this in the LoI hold on to. The delimitation to the main contract, but they should consistently adhere to.
Template Letter of Intent
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