Should I Sign a Letter of Intent?

The decision to sign a letter of intent is one that many people face at least once in their lives. A great deal of thought usually goes into determining whether a letter of intent is a wise move or not. If you are currently deciding whether you should sign a document of this type, here is some general information about the letters of intent and what they can do for everyone concerned.

In many different settings, businesses and other organizations choose to utilize a document known as a letter of intent. While the exact structure of these different letters of intent varies from one setting to another, the underlying function of the document is the same: to clearly establish and outline the intentions of both parties in regard to a specific transaction. In most cases, this type of document is seen as being a preliminary to the actual execution of the transaction at a later date.

Because the letter of intent is often seen as a precursor to a more permanent contract, not every jurisdiction considers the document to be binding. That is, either party can choose to back out of the transaction as long as the final purchase contract has not been drafted and signed. However, there are situations where an intent letter is considered binding. When that is the case, the party choosing to terminate the deal may be subject to some type of penalty or even possibly be open to legal action initiated by the other party.

There are many different types of letters of intent. Some are associated with the offer of athletic scholarships, while others have to do with the transfer of real estate or the possible acquisition of a business. Often the provisions of the document assume that particular circumstances come to pass. For example, the athletic scholarship may be extended if the prospective high school student finishes the senior year with a specific grade point average. Should the student fail to maintain that minimum average, the letter would be considered null and void.

Often, there is a very good reason to sign a letter of intent. When the document is drafted properly, the terms and conditions spelled out in the text will serve two purposes. First, each party involved in the prospective transaction will know exactly what type of commitment they are making, as well as what benefits they can reasonably expect from the relationship. Second, the provisions of a properly drafted document will protect the interests of both parties, providing them with more or less equal amounts of recourse in the event unforeseen circumstances arise.

Before signing any letter of intent, it is essential to understand the contents of the document thoroughly. Both parties must be assured that there is nothing contained within the text that is potentially damaging, or that commits one party in a manner that is unreasonable or beyond the ability of the party to accomplish. Even if the letter is not considered binding in the local jurisdiction, never sign any letter of intent unless you understand and are willing to comply with all the provisions found within the text.