PART 1 OF 3: What a Letter of Intent Is and Why It Matters

The document that sets the course of a practice acquisition, and the binding trap within it.

The letter of intent is often the first written agreement in a practice acquisition, and it carries more weight than its preliminary appearance suggests. A well-negotiated LOI sets the deal on a productive course; a careless one can bind a party to terms it never meant to commit to, or set expectations that are painful to revisit later. This article explains what an LOI is and why it deserves careful attention.

The purpose of an LOI

A letter of intent — sometimes called a term sheet or memorandum of understanding — records the parties' preliminary agreement on the essential terms of a transaction before the definitive purchase agreement is drafted. It confirms that the parties are aligned on the fundamentals, provides a framework for diligence and drafting, and signals a serious commitment to move forward. In practice, it is where the shape of the deal is set.

Binding versus non-binding

The most important and most misunderstood feature of an LOI is that it is usually a hybrid. Most provisions — price, structure, and the like — are intended to be non-binding statements of intent, subject to diligence and a definitive agreement. But certain provisions are typically intended to be binding immediately. Confusing the two is where parties get into trouble.

Which provisions are commonly binding

Even in a largely non-binding LOI, several terms are ordinarily meant to take effect at signing:

• Exclusivity, which prevents the seller from negotiating with others for a period.

• Confidentiality regarding the discussions and information exchanged.

• Allocation of expenses, such as who bears which costs.

• Governing law and dispute provisions for the LOI itself.

The risk of unintended commitment

Because an LOI blends binding and non-binding terms, imprecise drafting can bind a party to more than intended. Courts have, in some circumstances, found that a purportedly non-binding LOI created enforceable obligations — including a duty to negotiate in good faith — based on its language and the parties' conduct. Clear statements of what is and is not binding are essential, not boilerplate.

Why the LOI shapes the whole deal

Terms conceded in the LOI are difficult to renegotiate later. Once price and structure are on paper and both sides have aligned, reopening them invites friction and can signal bad faith. The LOI stage is the moment of greatest leverage to shape the deal; that leverage diminishes as the transaction progresses.

How West Coast Health Law Can Help

We help buyers and sellers of healthcare practices negotiate letters of intent that capture the right terms and draw a clear line between what is binding and what is not.

West Coast Health Law offers a FREE consultation which you may schedule by clicking the button on our website.

This article is provided for general informational purposes only and does not constitute legal advice or create an attorney-client relationship. Laws change and every transaction is different; consult a qualified attorney about your specific situation.