A Letter of Intent (LOI) is called a letter of intent or a letter of intent in Dutch. Below you will find exactly what a LOI is, when you use a Letter of Intent and whether it is binding. We also look at the difference between the letter of intent and the agreement of intent.
What is a Letter of Intent?
In a Letter of Intent you express the intention to achieve a certain goal. You can do this from one side to the other. But often it involves two or more parties expressing and recording their intentions.
In many cases, the intention is a concrete goal, such as the sale of a company. In that case, the buyer and seller record in the LOI what their purpose is (the takeover of the company) and who will do what to achieve this goal.
Difference letter of intent and letter of intent
The English term Letter of Intent can be translated into Dutch as letter of intent and letter of intent. Often these two terms are used interchangeably, but officially there is a difference in meaning. A letter of intent is unilateral, so one party records its intention. In a letter of intent, two or more parties state their intention.
Why a Letter of Intent?
A letter of intent or a letter of intent reflects the intentions of the parties. In principle, it is not yet a final agreement (see below). In a Letter of Intent you can show the state of affairs of the talks or negotiations between the parties. It also reflects future intentions. As a result, both parties know where they stand.
Is a Letter of Intent binding?
Officially perhaps not, but in Dutch law an LOI often appears to be legally binding. This has everything to do with the formulation of the LOI: you quickly enter into an agreement. It does not matter whether you are dealing with a strategic buyer, a financial buyer, a Management Buy In or Management Buy Out.
As a seller, you want the buyer to commit as much as possible, so that he or she can't get out of it. As a buyer, you want some wiggle room. Then you can, for example, state in the LOI that the due diligence investigation must be in accordance with expectations as a suspensive condition.
So don't just assume that the letter of intent is not legally binding – it's more than a gentlemen's agreement.