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Letter of intent template (Australia)

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Trying to negotiate the terms of the sale of real estate, a business, shares, or product? Below, we've explained exactly what to include in your letter and how to find a free letter of intent template to make this non-binding agreement hassle free.

What is a letter of intent?

A letter of intent is a document that expresses an intention to enter into a formal contract at a future date. The document requests that the other party carries out work prior to the contract being finalised. It's not intended to be used in place of a contract, but instead as a stopgap until the full terms and conditions of the contract are agreed. A letter of intent can also be referred to as an LOI.

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When should I use a letter of intent?

Generally, letters of intent are used when you're expecting a contractor to start incurring overhead costs. Ideally, all the terms and conditions featured in the contract are agreed by all stakeholders before work starts. A letter of intent is especially useful if parties are under commercial pressure to start work whilst the contract is still in negotiation.

Some examples for when a letter of template could be used include:

  • When a business intends to purchase another business entity.
  • To show seriousness during the purchase of real estate.
  • The start of a joint venture.
  • Between a tenant and landlord to stipulate rental rates and rules.
  • A last will and testament for family members.
  • To state your intentions to work for a particular company.
  • To help secure funding, a scholarship or a grant.
  • To express interest in a university or college.
  • To draw up terms about the services, payment, liability, confidentiality between two contractors.

What should I include in a letter of intent?

An effective letter of intent should include:

  • A definition of the project and a scope of the work.
  • Mutual intent to enter in a binding legal contract.
  • The intended contract sum, including VAT if applicable.
  • A cap on expenditure authority.
  • Descriptions of the intended contract.
  • Dates on which the work starts and ends.
  • Terms and cancellation procedures.
  • Information regarding access.
  • Clarity that the contract terms will take precedence over the letter of intent.
  • Insurance provisions.
  • What's expected to be delivered.
  • A dispute resolution clause.

How effective is a letter of intent?

Because letters of intent are not a legal document, their effect is dependent on what is included within the document. There is always a risk when use a letter of intent

A letter of intent can help with the following:

  • Provide a clear expectation of the timeframe for executing the negotiations and transaction.
  • Outline the terms and structure of the business deal.
  • Identify key issues that are deal-breakers.
  • Stop the negotiating parties from engaging with other parties.

Do I need a lawyer to write my letter of intent?

A well-drafted letter of intent can create a contract which is enforceable in the courts. Although you don't need a lawyer to write a letter of intent, it can help when using the right language and including the right details. An attorney experienced in business can help draft, or at least review, your letter. By doing this, it ensures all the major details have been agreed by both parties.

What's the difference between a letter of intent and a memorandum of understanding?

The main difference between the two documents is that a letter of intent is not legally binding. A memorandum of understanding is considered binding and holds weight in a court of law. Here are a few key differences:

  • Both documents identify any terms that need to be resolved before completing the deal.
  • In a letter of intent two parties are involved, whilst a memorandum of understanding allows more than two parties to be involved.
  • The LOI will list all the terms, actions and conditions that have been agreed by both parties, but is only signed by the party that initiated the document. An MOU details terms, actions and conditions and must be signed by all parties in the agreement.
  • Unlike LOI's, an MOU will stay in its form until the task or project is completed.

How do I write a letter of intent?

How you write your letter of intent depends on the purpose of the letter, your goals and the letter of intent template you use.

  1. Opening statement

In the introduction, you should state what the document's purpose is. Also describe the role of the two parties and the transaction.

  1. Describe the transaction

Here you give an in-depth description of the terms of the transaction. Include information on the type of business deal you will be entering and which timeframes you are expected to conclude the deal.

  1. List contingencies

Both parties should list the contingencies that need to be in place. Contingencies could include securing of financing or the approval of boards of directors.

  1. Describe due diligences

Discuss the relevant information about future proceedings so there are no surprises during the negotiating process.

  1. List binding agreements

Although a letter of intent is not legally binding, both parties can include sections which could stand up in court, if required.

  1. Non-binding statement

A section must be inserted that explicitly states which sections are binding and which are not.

  1. Closing date

Include a date where the deal is conceded, which is the date this letter of intent ends.

  1. Signature

This document must be signed by the initialising party.

A letter of intent can be a difficult document to craft, especially if you don't have experience in writing legal documents. That is why letter of intent templates are a fantastic option. Here's where to find some online.

  • Lawpath. Lawpath is an online legal resource for small businesses and entrepreneurs. You can take a look through a broad selection of free samples but you must be signed up to a plan to access customisation options.
  • Law Depot. Law Depot supplies a wide range of free online documents to download and customise, including a user-friendly letter of intent.
  • LegalVision. LegalVision offers users unlimited use of free legal document templates, including a letter of intent. You can also access experienced lawyers for a monthly membership fee of $199.
  • Wonder Legal. You can browse more than 140 legal document templates on Wonder Legal's website. Each of these documents can be customised and downloaded for a one-time fee.

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