An Overview of the Letter of Intent (LOI) Part 1
Ideally, contractual parties should begin their projects with a strong contract that is signed by all parties before any work begins. Unfortunately, a construction professional’s reality is can be the total opposite due to the pressures they face to get the ball rolling on projects sooner rather than later. This leads to parties turning to a letter of intent (LOI) until things get ironed out with the official contract. This article will serve as a primer on the LOI. To learn more, visit part two of this article.
What is a Letter of Intent (LOI)?
A letter of intent is only an expression of parties’ intent to enter into a contract. It implies that there is no agreement at the moment; however, it is a written “agreement” that states parties “intend” to work something out. In the meantime, parties are given the green light to begin some preliminary work while the formal contract is agreed upon and executed. If you are considering using an LOI, please consult a Clearwater construction attorney for guidance. An LOI can be binding or nonbinding but this all depends on the intent of the parties involved.
When Are LOI’s Used?
At times starting work on the basis of an LOI is necessary. Common reasons for proceeding work with an LOI include tight construction timeframes, getting financing in place, applying for vital permits, and obtaining formal and internal approves for contract sums or liability.
Risks are commonplace in construction, and LOIs do come with their fair share of them. Several issues can arise including either party changing their mind while the other party claims it has a contract. Furthermore, one party may not agree to all of the terms and one party may incur more cost due to relying on the commitment made with the LOI. Under an LOI, there are limits to the work a contractor can perform under the scope of work which can present its own problems. Using an LOI also transfers significant negotiation risk, adds administrative burden, and adds to the negotiating process.
Our Clearwater construction attorneys advise parties to draft and read LOIs carefully because you are bound by the terms therein.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.