Alex is Sprintlaw's co-founder and principal lawyer. Alex previously worked at a top-tier firm as a lawyer specialising in technology and media contracts, and founded a digital agency which he sold in 2015.
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When you’re negotiating a deal, you don’t always want to jump straight into a full contract. Sometimes you need a clear, written outline of the commercial terms so everyone is on the same page before investing more time and money.
That’s where a Letter of Intent (LOI) can help. It’s a simple way to record the key points you’ve agreed in principle, set expectations, and map out next steps like due diligence or drafting the final agreement.
In this guide, we’ll explain what an LOI is in Australia, when to use one, what to include in a letter of intent template, whether LOIs are binding, and practical steps to draft and use an LOI confidently.
What Is A Letter Of Intent (LOI) In Australia?
A Letter of Intent is a short document that captures the main commercial terms the parties intend to include in a future, more detailed contract. You’ll also hear it called an “LOI” or “letter of offer”.
Unlike a full agreement, an LOI focuses on high-level points. Think price ranges, timelines, key deliverables, and what happens next. It can also include protections while you negotiate (e.g. confidentiality and exclusivity), so you can talk openly and invest effort with less risk.
How Is An LOI Different From Similar Documents?
- Heads of Agreement: Often more detailed than an LOI and sometimes partially binding. If you’re looking for a structured, pre-contract framework, a Heads of Agreement may be more suitable.
- Memorandum of Understanding (MOU): Similar spirit to an LOI. It’s typically non-binding on the core deal terms, but can still include binding clauses. See Memorandum of Understanding.
- Term Sheet: Common in investment or funding deals. A Term Sheet lays out key financial and control terms before the full investment documents are prepared.
When Should Your Business Use An LOI?
- Buying or selling a business: Use an LOI to agree the price, structure, and process before drafting a full Business Sale Agreement (and running due diligence).
- Forming a new partnership or JV: Capture roles, contributions and timelines while you explore a longer-form collaboration agreement.
- Major supply or distribution deals: Lock in headline terms so you can invest in samples, forecasts or systems with more certainty.
- Investment discussions: Record valuation approach, equity, milestones and conditions before preparing full investment paperwork (your capital raise term sheet might play this role too).
In short, use an LOI when you want clarity and momentum, without locking in the whole deal just yet.
What To Include In A Letter Of Intent Template (Australia)
Your letter of intent template should be clear, concise and tailored to the kind of deals your business does. Here are the core sections most Australian small businesses include.
1) Parties And Purpose
Identify the parties, ABNs and company details (if applicable), plus a short statement of what you’re exploring (e.g. the proposed sale of assets, a services engagement, or a distribution arrangement).
2) Key Commercial Terms
- Price or pricing model: A fixed price, price range, or how price will be calculated (e.g. revenue share, per-unit fee, or valuation method).
- Scope and deliverables: A high-level description of what each party will do or provide.
- Timelines: Target dates for due diligence, contract drafting, and completion.
- Deal structure (if relevant): For acquisitions, note whether it’s an asset sale or share sale (our overview of share sale vs asset sale can help you frame this).
3) Due Diligence
Outline the information you’ll need and how long the review will take. This sets expectations and helps keep momentum.
4) Confidentiality
Most LOIs either include a confidentiality clause or reference a separate NDA. If you’re sharing sensitive information, it’s wise to put a Non-Disclosure Agreement in place alongside the LOI.
5) Exclusivity (No-Shop)
If the deal requires time and focus, you might request a period where the other party won’t negotiate with anyone else. An LOI can include an exclusivity clause (e.g. 30-90 days) to protect your investment in the process.
6) Costs, Approvals And Conditions
- Costs: Who pays their own legal and advisory costs?
- Approvals: Note any required board approvals or finance approvals.
- Conditions: Flag key conditions precedent (e.g. satisfactory due diligence, landlord consent on assignment, finance approval).
7) Binding vs Non‑Binding
Make it crystal clear which parts are binding and which are not. Typically, confidentiality, exclusivity, costs, governing law, and dispute resolution are binding. The commercial deal terms are usually expressed as non-binding intentions.
8) Governing Law And Dispute Resolution
State that the LOI is governed by Australian law (often your state or territory) and include a simple dispute process, such as good faith negotiation before any formal action.
9) Signatures And Term
Even if much of the LOI is non-binding, you should sign it to signal commitment to the process. Include a start date and when the LOI expires if no final contract is signed.
Is A Letter Of Intent Legally Binding?
It can be-if you want it to be. In Australia, an LOI can be drafted so that parts are binding and other parts are not. Courts will look at the wording, context and conduct of the parties to decide whether there was an intention to be legally bound.
As a rule of thumb:
- Usually binding: Confidentiality, exclusivity, costs, governing law and dispute resolution.
- Usually non-binding: Price, scope, timelines and other headline commercial terms (unless you clearly state the parties intend to be bound now, which is uncommon at this stage).
To avoid confusion, say it explicitly. For example, include a sentence like: “Except for clauses X (Confidentiality), Y (Exclusivity) and Z (Costs), this Letter of Intent is not intended to create legally binding obligations, and is an expression of the parties’ current intentions only.”
It’s also worth remembering that agreements don’t need to be long or labelled “contract” to be binding. For instance, courts can find that an email can be legally binding if it contains a clear offer and acceptance. Clarity in your LOI language matters.
Step-By-Step: Drafting And Using An LOI
Here’s a practical, low-stress process you can follow from first chat to signed LOI and beyond.
1) Align On The Headlines
Before you draft anything, confirm the big-ticket items in writing (even bullet points): price or pricing model, scope, timelines, due diligence, and any must-have conditions. This avoids drafting around misunderstandings.
2) Choose Your Format
Decide whether your situation calls for a short LOI, a more structured Heads of Agreement, or an MOU. For simple deals or early discussions, an LOI is often ideal. For complex transactions with more risk, a heads of agreement offers clearer structure.
3) Draft The Template Sections
Work through the sections in the checklist above, keeping language plain and specific. If confidentiality is important but you don’t want it in the LOI, run a standalone NDA in parallel.
4) Mark Binding And Non‑Binding Clearly
Use headings and clear statements to show which clauses are intended to be binding. Consistency matters-avoid mixing language (e.g. “must” vs “may”) that could muddy your intent.
5) Get The Right Sign-Offs
Ensure anyone signing has authority. If a company is signing, consider execution formalities and who should sign on behalf of the company (especially if you plan to later execute the final contract under company law rules).
6) Keep Momentum And Manage Risk
Set dates for due diligence, drafting and target completion. If things stall, extend exclusivity consciously (or let it lapse). Keep records of negotiations and decisions so the final contract drafting is swift and accurate.
7) Move To The Final Contract
Once the LOI milestones are met, move into your final agreement. For business acquisitions, this will be a Business Sale Agreement. For long-term collaborations, it might be a services agreement, distribution agreement or similar. If you’re buying or selling shares, revisit the structure in light of share sale vs asset sale implications before you lock it in.
8) Common Mistakes To Avoid
- Vague wording: Ambiguity causes disputes. Be specific about numbers, timeframes and processes.
- Accidentally binding the whole deal: If you intend to keep the commercial terms non-binding, say so clearly in multiple places.
- Forgetting protections: Don’t share sensitive details without confidentiality and consider exclusivity if you’re investing time or money during negotiations.
- Skipping conditions: If your deal depends on approvals or finance, flag them now, not later.
LOI Alternatives And Related Documents
Depending on the type and complexity of your deal, another document may be a better fit-or you might use multiple documents together as the negotiation progresses.
- Heads of Agreement: Gives a clear, sectioned structure for complex deals and is easier to partially bind. See Heads of Agreement.
- Memorandum of Understanding (MOU): Useful for collaborations and strategic alliances when you want to record intent and key principles without binding the full deal. See Memorandum of Understanding.
- Term Sheet: Particularly common for investments and capital raises to capture valuation, equity and control rights ahead of full documents. See Term Sheet.
- NDA (Confidentiality Agreement): Protect confidential information from the outset and throughout negotiations. See Non-Disclosure Agreement.
- Final Agreements: Your LOI should lead to a tailored final contract-such as a Business Sale Agreement for acquisitions or a services/distribution agreement for ongoing relationships.
If you’re weighing up which pathway is best, it can help to chat with a lawyer who can align the document choice with your goals, risk appetite and timelines.
Key Takeaways
- A Letter of Intent is a practical way to record key commercial terms and set the roadmap before you invest in a full contract.
- Keep your letter of intent template simple but clear-cover parties, purpose, commercial terms, due diligence, confidentiality, exclusivity, conditions, and governing law.
- Decide what’s binding: confidentiality, exclusivity and costs are commonly binding; the core deal terms are often non-binding unless you state otherwise.
- Use LOIs to create momentum, manage risk during negotiations, and transition smoothly into your final agreement.
- Consider related documents-such as a Heads of Agreement, MOU, Term Sheet and NDA-depending on the type and complexity of the deal.
- Clarity of language is critical; if in doubt, get legal guidance early to avoid accidental commitments or gaps in protection.
If you’d like a consultation on preparing a Letter of Intent tailored to your business, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.
