Why Use A Letter of Intent (LOI)? Posted on Jul 04, 2016

Letters of Intent (LOIs) can be essential to locking in a sale prior to a final agreement, such as in the case of a commercial system installation. From the provider's point of view, a binding LOI guarantees payment upon contingencies being met. From where the customer stands, a LOI ensures certain contingencies are met prior to making payment. For instance, the contingencies in a LOI for Solar System Purchase (Binding) may include the size of a system, equipment installed, price, and timing. With a LOI the customer gets exactly what they intended, and the provider locks in the sale, creating the win-win for both parties involved.

What is a Binding vs. Non-Binding LOI?

A binding LOI creates enforceable commitments, such as payment upon contingencies being met. If contingencies cannot be met in a binding LOI, then both parties may be free from any obligations. Non-binding LOIs explore relationships, establish trust and may be used for publicity, yet a non-binding LOI may not bound either party to contingencies being met.

There are other things to consider when choosing a binding vs. non-binding LOI. First, a non-binding LOI may include other conditions, such as confidentiality, which would be enforceable. Next, if a LOI is neither specified as binding nor non-binding, it may be considered binding.