December 18, 2014

 

Question:

Jennifer,

Does a letter of intent bind me to a deal?

Thanks, 
Dr. G

Answer: 

 

Depends on the terms of the letter of intent AND depends on what you mean by bind. Very frequently I hear, "well, the LOI is  non-binding so I didn't show it to you."  Mistake.  A letter of intent is non-binding if it says its non-binding, and that language should be specific.  More than that, if the LOI does state its non-binding, regardless, the parties to it are relying on those terms to make a definitive deal, in all likelihood. So, legally binding, maybe not. Conceptually and expectation-wise binding, potentially so. The terms of the LOI are often negotiated, and one party may not take well to deviations in deal terms post-execution of an LOI.  Typically, modification of terms after a signed LOI is seen appropriate should due diligence anticipated and authorized by the LOI change material deal points.  If, for example, the LOI is for contemplated employment, where the employee has little leverage, waiting until after you sign an LOI to try to negotiate a higher salary or better benefits, or other terms that may be covered in the LOI may be seen as bad faith dealings by your future employer. 

So, my advice, which you may have already guessed, is that a letter of intent, even if not legally binding, maybe viewed as conceptually binding to be relied upon for definitive agreements.  Which is why before signing the LOI it is very important to make sure the deal you want is what is reflected in the LOI, and why involvement of your healthcare attorney before execution of the LOI, preferably before negotiation of the LOI, is essential.  

 

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