An LOI template is a reasonable checklist and a poor document to send, because standard wording encodes whichever side the template was written for and the defaults are rarely neutral. Six clauses matter. Three of them bind despite the document being described as non-binding, and one of the three is the clause a template will almost always make longer than a seller should accept. This page sets out the six.
The three that do not bind
Price, structure and the treatment of working capital. All three are statements of intent subject to diligence, and they should be, because neither side can commit to a price before the buyer has examined the numbers. What the document does is establish the shape clearly enough to justify the cost of what follows.
Binding one: exclusivity, and the length a template defaults to
Signing means not talking to anybody else for a defined period, commonly thirty to ninety days, and templates default to the long end. That period removes the competitive tension that produced the price. A shorter window with a defined extension is worth more to a seller than a small movement on the headline.
Binding two and three: confidentiality and expenses
Confidentiality survives whether or not the deal completes, and each side normally bears its own costs. Occasionally a break fee appears, and where it does it deserves as much attention as the price, because it turns walking away into a payment. These clauses are short and at the back.
What a template cannot know
Which consents this deal needs, what the working capital mechanism should say for this business, and whether the buyer's funding is committed. Those are the parts that decide whether the deal closes, and they are the parts every template leaves as a bracketed placeholder.
Questions people ask about loi template
Which parts of an LOI bind?
Exclusivity, confidentiality and expenses, plus any break fee. Price, structure and working capital do not.
What does a template get wrong?
Exclusivity length, usually defaulting to the long end, which suits whichever side the template was written for.
Should a seller negotiate price or terms first?
Terms. The length of exclusivity and what must accompany a price change are worth more than a small movement on the headline.