Letter of intent (non-binding)

by Practical Law Commercial

A non-legally binding letter of intent (or heads of terms) for use by two UK companies contemplating a commercial transaction. This document helps parties outline the key commercial principles of a proposed general commercial transaction before drafting a detailed formal agreement. Intended to provide a structural backbone for negotiations, particularly in complex deals, this letter of intent helps parties focus on high-level terms, such as the nature of the deal, payment mechanisms and a proposed timetable. It guides users on how to avoid creating an unintended legally binding relationship, exploring the importance of using phrases like "subject to contract". This standard document also discusses why sensitive terms like confidentiality and exclusivity are often better handled in separate, enforceable agreements. It addresses the practicalities of terminating negotiations and the implications of an obligation to negotiate in good faith under English law.