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- A Letter of Intent (LOI) is a preliminary declaration of intent between parties for an agreement.
- The LOI clarifies the essential points of an intended cooperation or transaction.
- An LOI contains information about the parties, business descriptionand the main terms of the agreement.
- In Germany, the LOI is not normally legally binding unless otherwise agreed.
- Frequent areas of application are mergers & acquisitions and real estate transactions.
- It is important to be precise when formulating the LOI and to seek legal advice.
- The LOI is useful to record intentions and conditions in the early stages of negotiations.
Introduction
A Letter of Intent (LOI), often referred to in German as Absichtserklärung, is a document in which the basic intentions and terms of an agreement between two or more parties are set out in writing. It is a preliminary statement of intent that usually serves as a precursor to a binding contract.
Purpose of the LOI
The LOI serves to clarify the essential points of an intended cooperation or transaction and to create a common understanding about the basic features of the planned agreement. It is often used in the initial stages of negotiations before the parties enter into the detailed drafting of a final contract.
Contents of a LOI
An LOI can contain a variety of information, such as:
- The parties involved in the agreement
- A general description of the intended business or transaction
- The main terms and conditions, on which there is already agreement
- The time frame for further negotiations
- Confidentiality clauses
- Reservations or conditions that must be met before a binding contract is concluded
Legal significance in Germany
In Germany, the LOI is generally not legally binding unless the parties expressly agree otherwise. It is a letter of intent that shows that the parties are seriously negotiating cooperation. However, some clauses within the LOI, such as confidentiality agreements, may be legally binding.
Application areas
The LOI is commonly used in various business areas, such as:
- Mergers & Acquisitions (M&A)
- Real Estate Transactions
- Joint ventures
- Major projects and public contracts
Precautions
It is important to be precise when drafting an LOI and to make clear which parts are intended to be binding and which are not. It is recommended that legal advice be sought to ensure that the LOI accurately reflects the intentions of the parties and does not create unwanted legal liabilities.
Conclusion
A letter of intent is a useful tool in the early stages of negotiations to record the intentions and terms of a proposed transaction or collaboration. In Germany, it is generally not legally binding, with the exception of certain clauses that are marked as such. It is advisable to proceed carefully when drafting an LOI and to seek legal advice if necessary.
