What is Letter of Intent?

A letter of intent sits between an informal expression of interest and a binding contract. It captures the commercial terms both parties have discussed and intend to formalise, without creating a full contractual obligation. Typical contents include the scope of the deal, an indicative price or price range, a timeline for due diligence, and conditions that must be met before a final agreement is signed.

The legal status of an LOI depends on how it is drafted. In most jurisdictions, including the Netherlands, an LOI is not automatically binding. However, specific clauses within it can be. Confidentiality obligations, exclusivity periods, and cost-sharing arrangements are frequently drafted as binding provisions, even when the rest of the document is expressly non-binding.

Problems arise when parties treat the LOI as a formality and skip the detail. If the language is vague about which sections are binding and which are not, courts may interpret the document as creating enforceable obligations. This is especially relevant in Dutch law, where pre-contractual good faith obligations can prevent a party from walking away without consequences, even without a signed contract.

For SMBs, the main risk is investing time and money in negotiations based on an LOI that the other party later abandons. A well-drafted LOI protects both sides by clearly stating what is binding, what is not, and under which conditions either party can withdraw.

Without a clear LOI, businesses enter negotiations with no documented understanding of the deal structure. This leads to wasted due diligence costs, misaligned expectations, and disputes about what was agreed verbally. Research shows that 95% of organisations lack full visibility into their contractual obligations (Weshare, 2025), and that blind spot often starts at the pre-contract stage. An LOI forces both parties to put terms on paper early, reducing the chance of costly surprises when the final contract is drafted.