Letter of intent – what it is, model
A letter of intent is a commonly used document in various spheres of life, both personal and business. Despite the fact that we sign various contracts in our lives, we are afraid that the other party will back out of previous agreements. When we change jobs, we worry that even after giving notice to our employer, the new company will change the terms of the agreement or abandon it. In such a situation, a letter of intent can come in handy. What is a letter of intent? What is the legal significance of a letter of intent? How to write a letter of intent?
TABLE OF CONTENTS:
- Letter of intent – what is it?
- Form of a letter of intent
- Letter of intent versus preliminary agreement
- Signing a letter of intent – what are the consequences?
- When is it worth writing a letter of intent?
- What does a letter of intent contain?
- How to write a letter of intent?
- Letter of intent – sample
- When is it worth signing a letter of intent?
Letter of intent – what is it?
A letter of intent is a document in which the author expresses his or her intentions or intentions towards a person or institution. It is a type of letter that is intended to express a willingness to undertake a certain activity or enter into a contract, as well as to set out one’s expectations of the other party. A letter of intent can be used in a variety of situations, such as signing a contract, making a commercial offer, applying for a job, or declaring one’s interest in a particular matter or subject. A letter of intent is not legally binding, but it is a kind of declaration of intent, which can help to establish further contacts and negotiations.
Generally speaking, a letter of intent is most often signed during negotiations or after the terms of each party’s agreement have been set. It is also possible to encounter the conclusion of a letter of intent in the case of a job search.
Typically, a letter of intent deals with issues such as:
- date of commencement of work
- working hours
- outline of the terms and conditions of cooperation
- conclusion of the sales contract
- type of work performed and remuneration
- assumptions of joint projects
- undertaking of specific business activities
In a letter of intent, the parties have the possibility to conclude agreements/collaboration on any possible topic.
Form of letter of intent
The form of a letter of intent may vary depending on the purpose for which it is written. There is no objection to a letter of intent being concluded verbally or by e-mail. However, it is worthwhile, for its greater significance, to conclude it in the form of a document.
Letter of intent versus preliminary agreement
The concept of a letter of intent is very often confused with a preliminary agreement. Both documents serve to express preliminary interest and intentions, but their nature and functions are somewhat different. A letter of intent, as mentioned earlier, is a kind of preliminary agreement between two parties who set out their intentions and the terms on which they wish to cooperate. It is a document that forms the basis for further negotiations and arrangements. A letter of intent is not legally binding, i.e. it has no enforcement power, but is merely informative.
In contrast, a preliminary agreement, or promised agreement, is a document that is already legally binding. This means that the parties undertake to conclude a final agreement on certain terms. A preliminary agreement is already more detailed than a letter of intent and contains more specific provisions regarding the subject of the agreement, the time of execution, payment terms, penalties for non-performance, etc.
In practice, the preliminary agreement is concluded after the parties have agreed on all the terms of the preliminary agreement in the letter of intent. The preliminary agreement is therefore already a more formal document that gives both parties some guarantee that the terms of the transaction will be met.
The completion of negotiations can be confirmed in a number of different ways, while deciding to sign a preliminary agreement, it is important to remember that we bear the legal consequences of signing the letter.
The parties to the preliminary agreement therefore have the opportunity to force the conclusion of the main agreement on the basis of the preliminary agreement.
The preliminary agreement is intended to create a provisional legal agreement that contains binding terms for the transactions in question.
According to Article 29 of the Labour Code, it specifies that, regardless of the name given, a document will be considered a preliminary agreement if all of the following elements are present:
- job title
- working hours
- date of intended commencement of work,
- place of work,
- specified remuneration.
Read also: What is interpersonal communication?
Signing a letter of intent – what are the implications?
In the case of a letter of intent, the law does not regulate its definition. This means that the receipt of a letter of intent is not legally binding. The drafting of a letter of intent will not always be irreversible. Under certain circumstances, it may turn out that at least some provisions of a letter of intent are legally binding. These are most often situations where the parties enter into negotiations in capital transactions, e.g. when venture capital funds invest in a startup. A letter of intent is then signed, which summarises the main provisions of the deal. Often, people then agree that the arrangements in question will be binding. This includes situations such as confidentiality or exclusivity of negotiations.
The letter of intent is only meant to be a will to conclude a binding agreement. We come across the concept of a letter of intent in the case of employment, when we agree with an employer, for example, the conditions of our employment.
Although the mere naming of the document as a letter of intent does not determine the legal consequences of the letter, it is the content of the letter that decides, which, if it resembles a contract, may give rise to liability.
When is it worth writing a letter of intent?
A letter of intent is usually written in situations where two parties intend to sign a contract or enter into a co-operation, but it has not yet been concluded. A letter of intent is a type of preliminary agreement in which the parties set out their intentions and the terms on which they wish to cooperate.
A letter of intent is often used in business, especially when entering into commercial or investment agreements or when buying or selling real estate. In such cases, the letter of intent serves to express initial interest, to outline the key terms and conditions of the cooperation and to establish the next steps to be taken in order to conclude the final agreement.
In addition, a letter of intent can also be used in job applications, where it serves to present your intentions and motivations and to draw the employer’s attention to your qualifications and experience.
A letter of intent is also used in the activities of state and local authorities.
Read also: Job seniority, what does it consist of?
What does the letter of intent contain?
The content of the letter of intent should include:
- date and place
- designation of both sides of the letter
- information on the form of cooperation
- date of beginning of cooperation
- assurance of non-negotiation in the future
- terms and conditions of employment
- length of service and contract
- the signature of each party
- a commitment to negotiate in good faith
How to write a letter of intent?
The construction of a letter of intent should contain specific provisions on the future arrangements, obligations of the parties, which have been worked out during the negotiations.
It is important that the letter of intent is written in a precise and unambiguous manner, and that it contains all relevant information, such as the terms and conditions of cooperation, dates and deadlines, or amounts, as far as business transactions are concerned. This will avoid later misunderstandings and conflicts. The nature of the letter of intent need not be formal, as it is not legally binding. It can therefore be concluded in any form. The content of the letter of intent is decided by the parties themselves, who give it the appropriate shape. In a letter of intent, however, it is advisable to be serious and to use appropriate words that will describe the terms of the agreement well.
The letter of intent should include the most important points regarding the terms of negotiation. It is advisable to include a clause in the letter of intent that specifies the agreed issues that they will not lead to a change.
Letter of intent – model
Below is a sample template for an employment-related letter of intent.
When is it worth signing a letter of intent?
A letter of intent can be offered to an employee if the employer is keen to hire but cannot yet accept the employee when:
- the employee does not have the relevant qualifications, e.g. is in the process of doing a course, etc.
- the company changes its legal structure.
- The letter of intent confirms our intentions. The arrangements in the letter of intent stiffen our negotiating position. The letter does not give us any guarantee, but only shows our willingness to conclude an agreement.
- A letter of intent does not, in principle, necessarily lead to the finalisation of the promised agreement.
- A promised agreement called a letter of intent also has legal effects.
- In the letter of intent, the potential buyer may declare that the final purchase will be made subject to an agreed non-compete clause.
- The legal effect of a letter of intent is not binding in any code of law.
- A letter of intent should not be hastily signed, because if it has the characteristics typical of a contract, consequences can be drawn from it.
- Although a letter of intent does not carry legal characteristics, it is not its name that is decisive, but the scope of the commitment entered into.
- When drafting a letter of intent, it is advisable to write it concisely and clearly.
- Sometimes a letter of intent is referred to differently as a promised agreement, but it is not the same thing.
A letter of intent is a document that speeds up the negotiation process and helps to establish cooperation. It differs from the conclusion of a promised agreement in that it is not binding. A letter of intent merely outlines the plans for a particular project.