Can I Get Out of a Letter of Intent After I Sign It?

“It’s just an LOI. It’s not binding.” Usually. But not entirely.

A letter of intent, or LOI, is commonly used when parties are considering the purchase or sale of a business. It puts the basic terms of the proposed deal on paper before the parties invest significant time and money in due diligence and definitive agreements. Most LOIs expressly provide that the principal deal terms are nonbinding. In other words, signing the LOI generally does not mean you are required to complete the transaction.

But some provisions are usually intended to be binding. Two of the most important are exclusivity and confidentiality.

With exclusivity, a seller agrees not to shop the business or negotiate with other potential buyers for a specified period. That period is limited, although it can be surprisingly long. I have seen proposed exclusivity periods of nine months. A seller may be free to walk away from the proposed transaction but still unable to pursue another buyer until the exclusivity period expires.

Confidentiality is different. Particularly when proprietary business information is being shared, the confidentiality obligation may continue long after negotiations end, and sometimes indefinitely. Other provisions concerning expenses, governing law or the conduct of negotiations may also be binding.

So, can you get out of an LOI after you sign it?

Often, you can get out of the deal. That does not necessarily mean you can get out of the LOI.

And that distinction is worth understanding before you sign it.