Structuring MOUs, LOIs, Term Sheets, and Other Nonbinding Legal Documents

Parties use preliminary agreements (LOIs, MOUs, or term sheets) (1) when parties contemplating a transaction want to institute a confidential relationship before the deal, (2) when parties to a potential transaction want to establish baseline business terms, or (3) when the timeline for an intended arrangement is such that contingencies for termination are uncertain.

LOIs, MOUs, and term sheets are commercially favored but can introduce significant risk if not drafted precisely. Risks include creating an obligation to perform a contract, the inability to enforce limited terms expected to be enforceable, and formal disputes or litigation.

Typically, parties mean LOIs, MOUs, and term sheets to evidence their intent to do something in the future. While intended to show good faith rather than "final" contract documents, ambiguity and differing intentions can result in a dispute. Whether preliminary agreements are binding or non-binding contracts depends on the provisions in the specific contract. Courts look at multiple factors in finding whether the language in an initial agreement is binding or non-binding.

Listen as our experienced panel of practitioners examines legal risks and best practices for structuring LOIs, MOUs, or term sheets to minimize disputes over whether the agreements are binding.