Clients ask me this question more than almost any other in the early stages of a deal. They have a letter of intent in hand and are not sure if they can walk away, if they are locked in, or somewhere in between.
The honest answer is that it depends entirely on how the letter is written. Here is what I look for and what I tell clients to watch for.
1. A letter of intent is mostly a roadmap, not a contract
Most letters of intent are designed to lay out the basic deal terms, purchase price, structure, and timeline, so both sides can move forward with due diligence and drafting the final agreement. In most cases, the core business terms are intended to be non-binding.
That said, "mostly non-binding" is not the same as "meaningless." A poorly drafted letter can create ambiguity about what was actually agreed, and that ambiguity can cause real problems later.
2. Certain provisions are usually binding even in a non-binding letter
Even when the main deal terms are non-binding, certain provisions are typically intended to be binding immediately. These commonly include confidentiality obligations, exclusivity or "no-shop" clauses, and sometimes an agreement to allocate costs if the deal falls apart.
An exclusivity clause is often the one that catches people off guard. It can prevent a seller from talking to other buyers for a defined period, even though the purchase price itself is not locked in.
I tell clients to read every provision and ask specifically whether it is labeled binding or non-binding. Do not assume.
3. Vague terms in a letter of intent can come back to haunt you
I have seen deals slow down for weeks because the letter of intent used loose language about how the purchase price would be adjusted, or left the treatment of working capital vague. Even in a non-binding document, the specific language often becomes the starting point for negotiating the definitive agreement.
The more precise the letter of intent, the smoother the drafting process tends to go afterward. Vague terms invite renegotiation.
4. Walking away is not always free
Even where the core terms are non-binding, walking away from a deal after signing a letter of intent is rarely without consequence. Exclusivity provisions can create exposure if a party negotiates elsewhere during the exclusivity period. Expense reimbursement clauses can shift due diligence costs to the party that walks.
Reputational cost matters too, particularly in smaller industries and regional markets where buyers and sellers tend to know each other or share advisors.
5. Courts look closely at the parties' intent
When disputes arise over whether a letter of intent created binding obligations, courts generally look at the specific language used, whether the parties described terms as binding or non-binding, and how the parties behaved after signing. Labeling something "non-binding" helps, but it is not always the final word if the parties' conduct suggests otherwise.
This is exactly why the drafting matters as much as the business terms themselves.
A letter of intent sets the tone for the entire deal that follows. If you are about to sign one, or you are staring at one now and are not sure what you are actually agreeing to, reach out through blgattorney.com or call my Oklahoma City office before you sign.