Do You Need a Lawyer for a Letter of Intent?
Many times in complex transactions, the parties want to have an understanding of some of the key financial and other terms before expending the costs associated with developing a full purchase agreement or other contract. These terms are often outlined in a letter of intent. Often times clients ask whether or not they really need to have a lawyer involved at that stage of negotiation since the letter of intent is usually couched as being non-binding. It might even say on its face “Non-Binding Letter of Intent.” Even in these cases though, counsel participation can be very helpful. For example, while letters of intent are often largely non-binding, there are usually some binding provisions. Many buyers insist upon an exclusivity provision that is binding. If a separate confidentiality agreement has not already been entered into or negotiated, binding confidentiality provisions might need to be inserted into the letter of intent. There could also be a forum selection clause contained within the letter of intent that might force an Indiana seller to try to enforce mandatory parts of the letter or have the them enforced against them in a foreign jurisdiction. Given the prevalence of mandatory provisions within “non-binding” letters of intent, counsel participation can certainly be helpful. Further, due to the nature of the letters of intent, it is helpful to have counsel review them to be sure that non-binding provisions are truly non-binding.
Even for the non-binding provisions, counsel participation can be helpful. For example, a letter of intent might propose a certain tax structure for the benefit of the buyer that could have negative ramifications for the seller. The buyer might also propose hold back or indemnity provisions as a part of the letter of intent that are, while not necessarily binding, going to be guiding their thinking as to the negotiation of an eventual purchase agreement. It is often better to be clear upfront about what the expectations of the parties are as to purchase or other agreement terms that are pressure points within the deal structure. Involving counsel and tax experts early on in the process can save considerable friction during the negotiation of the definitive documents and help be sure that the parties are aligned on the overall transaction.