The LOI: What It Should and Shouldn't Lock In#
A Letter of Intent isn't a contract, but buyers and sellers routinely treat terms in it as if they were binding. That confusion causes more deal friction than almost any other document in the process.
What an LOI Is Actually For#
A Letter of Intent lays out the framework for a deal, price, structure, key terms, and exclusivity, before either side commits significant time and money to full due diligence and legal drafting. Most LOI terms are non-binding, meaning either party can walk away without legal consequence. A small handful of provisions, typically exclusivity, confidentiality, and sometimes a break-up fee, are usually binding regardless of what happens with the rest of the deal.
Where the Confusion Costs Real Money and Time#
A seller who treats the non-binding purchase price as final sometimes gets blindsided when due diligence findings lead a buyer to renegotiate, since the price was never actually locked in.
A buyer who signs an LOI without a binding exclusivity clause can lose a deal to a competing buyer mid-negotiation, since the seller was never actually obligated to stop shopping the deal.
Both sides sometimes spend weeks negotiating minor language in non-binding sections while glossing over the handful of terms that are actually enforceable.
The Fix#
Know exactly which clauses are binding before signing. Exclusivity period, confidentiality, and governing law are almost always binding. Price, structure, and most deal terms typically are not.
Use the LOI to lock in structure and timeline, not just price. A clear framework for due diligence length, financing contingencies, and target closing date prevents drift later in the process.
Negotiate the exclusivity period carefully. Too short and a buyer can't complete real due diligence. Too long and a seller loses leverage and market exposure without a guaranteed outcome.
Don't skip legal review because the LOI feels informal. Even non-binding language sets expectations that shape how the rest of the negotiation plays out, and a poorly worded LOI creates friction even without legal enforceability.
Where Openfair Fits#
Openfair helps both sides draft LOIs that are clear about what's binding and what isn't, so neither party walks into due diligence with a false sense of certainty about terms that were never locked in.
Getting This Right Early#
An LOI sets the tone for everything that follows. Getting the binding and non-binding pieces right upfront prevents a much bigger fight later.
FAQ#
Is the purchase price in an LOI ever binding? Rarely. It's typically a stated target based on information available at the time, and due diligence findings can lead to a renegotiated price before the definitive agreement.
What happens if a buyer breaches the exclusivity clause? Depending on how it's drafted, the seller may have grounds for legal action or a break-up fee, since exclusivity is usually one of the binding provisions.
How long should an exclusivity period last? It varies by deal complexity, but 60 to 90 days is common for SMB deals, long enough for real due diligence without leaving a seller off the market indefinitely.
Should a seller entertain multiple LOIs at once? Before signing an exclusive LOI, yes, comparing offers is standard practice. Once exclusivity is signed, the seller is typically obligated to stop engaging with other buyers.