You’ve signed a letter of intent (LOI), now what? Can you still back out of the deal before closing on the business purchase and sale agreement? Generally, the answer is yes; however, the express language used in the LOI is crucial for understanding and abiding by your legal obligations.
Binding and Non-Binding Provisions in an LOI
Signing an LOI is generally non-legally binding if it is explicitly stated as such. That said, even if an LOI expresses non-binding intent, certain provisions within the agreement may be considered binding.
For example, commitments to confidentiality, exclusivity for a specified period, or the obligation to conduct due diligence may be binding. It’s imperative to review the details of the agreement, especially these conditional provisions that may be binding. Other potentially binding provisions include:
- A “no shopping” clause – If the LOI outlines a period for exclusive negotiations or includes terms such as a “no-shop” clause, these provisions may be legally binding during the specified time frame (typically for 60 days).
- A non-disclosure agreement – NDAs are a common part of a business purchase and sale agreement and are legally binding.
- A business conduct provision – This offers some protections for the buyer regarding how the seller conducts business until the purchaser’s closing or termination of the LOI.
- A “break-up” fee clause – The LOI may include a payment penalty if the deal doesn’t close.
When drafting or reviewing a letter of intent for a merger or acquisition, express language is essential. If you want the agreement to be non-binding, include non-binding language. Ambiguity only leads to problems. Before pursuing a business purchase and sale agreement in Florida, consult with a legal professional.
Our attorneys at the Law Offices of Alex D. Sirulnik, P.A. are here to assist. Contact us today to request a free consultation.
