Don’t sign a binding letter of intent!

Golden oldie number 5 – don’t sign it!

IP Draughts

Last week this blog had a posting, Don’t Sign the Term Sheet, in which we discussed some dangers of signing term sheets, even if they are stated to be non-binding.

We called the document a term sheet, although we could have used any number of alternative names that are often used interchangeably with term sheet, including:

  • heads of terms
  • heads of agreement
  • memorandum of understanding
  • letter of intent

Which term is used seems to depend largely on commercial practice in a particular country or industry. We are not aware of any legal distinction between these terms. Under English law, the document’s title is far less important than whether the parties intend the document to be legally binding, which should be stated in the document itself. As we discussed last week, parties usually prefer the document to be non-binding, although sometimes a hybrid solution is agreed, under which certain…

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