Letter of Intent Template for the United Kingdom
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What is a Letter of Intent?
A letter of intent (LOI) is a written document that records the preliminary understanding between two or more parties who intend to enter into a formal agreement, setting out the key terms and the direction of the proposed deal. It is commonly used at the start of transactions such as acquisitions, joint ventures, property arrangements, or major supply contracts. Most letters of intent are largely non-binding, though certain clauses such as confidentiality and exclusivity are often expressed to be binding. Careful drafting matters because unclear wording can accidentally create enforceable obligations.
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Frequently Asked Questions
Is a letter of intent legally binding?
Most letters of intent are intended to be non-binding statements of intent, but specific clauses such as confidentiality, exclusivity, and governing law are frequently made binding. Whether a term is enforceable depends on its wording and the parties' apparent intention, so clarity is essential.
What is the difference between a letter of intent and a heads of terms?
The terms are often used interchangeably to describe a document recording preliminary agreement before a formal contract. A memorandum of understanding is another common label for a similar document.
How do I stop a letter of intent from becoming a binding contract by accident?
State expressly that the document is subject to contract and is not binding except for identified clauses, and avoid wording that suggests a final agreement has been reached. Marking correspondence as subject to contract helps signal that no binding deal exists yet.
Should a letter of intent include an exclusivity period?
An exclusivity or lock-out clause can be useful to protect a party investing in due diligence, but it must be clearly drafted and time-limited to be enforceable. In England and Wales an agreement simply to negotiate in good faith is generally not enforceable, so exclusivity should be framed as a lock-out obligation.
Do I still need a full contract after signing a letter of intent?
Yes, a letter of intent usually sets the framework only, and the parties are expected to negotiate and sign a detailed definitive agreement. This document does not use or reference any specific product or service.
About the Letter of Intent
A Letter of Intent usually covers the following.
- Parties and Background: Identify each party by full legal name and registered address, and summarise the context and purpose of the proposed transaction.
- Summary of Proposed Terms: Set out the principal commercial terms under discussion, such as price, scope, structure, and key deliverables.
- Binding and Non-Binding Provisions: State clearly which clauses are intended to be legally binding and which are merely a statement of intent, to avoid ambiguity.
- Confidentiality: Oblige the parties to keep the discussions and any shared information confidential, typically as a binding provision.
- Exclusivity or Lock-Out: Where agreed, prevent a party from negotiating with third parties for a defined period while due diligence and negotiations continue.
- Due Diligence and Conditions: Describe the investigations to be carried out and any conditions that must be satisfied before a final agreement is signed.
- Costs and Expenses: Confirm that each party bears its own costs unless otherwise agreed, and address any break fees if relevant.
- Governing Law and Jurisdiction: Specify that the letter is governed by the law of England and Wales, Scotland, or Northern Ireland, and identify the relevant courts.
- Term and Termination: State how long the letter of intent remains in effect and how either party may bring the arrangement to an end.
GOVERNING LAW
Applicable law
This Letter of Intent is drafted to comply with United Kingdom law. Key legislation includes:
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