What actually changes the day you sign an LOI

Signing a letter of intent feels, for a lot of first-time buyers and sellers, like the moment a deal has actually happened. Terms are agreed, a document has signatures on it, and the hardest conversation, price, seems settled. Almost none of that is true in the way it feels. An LOI is generally non-binding on price and on most commercial terms, meaning either side can still walk away over what due diligence uncovers, and the real work of the transaction, financial verification, legal review, financing, has not started yet. What does change immediately, and what surprises a lot of first-timers, is not the deal itself but the behaviour both sides are now bound to and the costs both sides start incurring, often before anyone has confirmed the deal will actually close.

What actually binds, even in a non-binding letter

Most letters of intent carve out a small number of provisions that are binding regardless of what happens to the rest of the deal, and exclusivity is usually the one that matters most. A seller who signs typically agrees not to negotiate with other buyers for a defined period, which is a real commitment: every week spent in exclusivity with one buyer is a week the seller is not talking to anyone else, and if that buyer’s financing falls through or diligence turns up something unresolvable, the seller restarts a process that has already cost time. Confidentiality is usually binding too, since the seller is about to hand over financial detail, customer information, and operational specifics that would be damaging if the deal fell apart and the buyer, or a competitor posing as one, walked away with a clear picture of the business anyway.

The costs and scrutiny that start immediately

• Legal and accounting fees begin accruing on both sides almost as soon as the LOI is signed, well before either party knows for certain the deal will close
• The tone of the relationship tends to shift from courtship to scrutiny, since due diligence is, by its nature, an exercise in finding problems rather than confirming everything is fine
• A seller’s day-to-day attention gets pulled toward the deal, document requests, calls with the buyer’s advisors, at exactly the point the business most needs to keep performing normally through closing
• Employees, landlords, or key customers may need to be told something is happening, even in a limited way, which introduces a confidentiality risk that did not exist before the LOI stage

The practical implication for both sides is to treat the LOI stage with more seriousness than its non-binding language suggests. A buyer should not sign one lightly assuming they can walk away costlessly if they change their mind, since real money and real time get spent regardless of outcome, and a pattern of signing LOIs and backing out repeatedly tends to damage a buyer’s reputation with brokers faster than most buyers expect. A seller should not treat a signed LOI as the deal being done, since the exclusivity period is exactly when a buyer’s diligence team is most likely to find the issue that reopens the price conversation. Understanding that the LOI is a starting gun rather than a finish line is one of the simpler shifts in expectation that makes the months that follow considerably less jarring for a first-time party on either side of the table.

What to actually look at before signing one

Because so much of an LOI’s real weight sits in a handful of clauses rather than in the headline price, it is worth reading those clauses specifically rather than skimming past them to get to the number. How long does the exclusivity period run, and is it long enough for genuine due diligence without being so long it locks a seller out of the market unreasonably. Is any deposit refundable if the deal falls through for a reason outside the buyer’s control, and under what conditions is it not. What conditions precedent actually need to be satisfied before either party is obligated to close, and how specific are they, since a vague condition tends to generate disputes later about whether it was actually met. None of these questions require a finished legal education to ask, but the answers shape the months that follow far more than the price figure both sides will spend most of their attention negotiating.