By Mark Sayer I Insights

The Real Pros and Cons of Using a Letter of Intent (LOI)

A Letter of Intent (LOI) can be a powerful tool or a potential trap. It all depends on how, when and why you use it. If you’re in construction, real estate or commercial contracting, you’ve likely come across an LOI. It’s the document that lets you get moving while the paperwork is still catching up. But before you rely on one, you need to know what you’re really signing up for.

Let’s break it down.

Pros of a Letter of Intent

1. You Can Get Started Faster

An LOI lets you kick off early-stage works while formal contracts are still being finalised. In fast-moving projects,
time is money, LOIs give you momentum.

2. Shows You're Serious

An LOI sends a strong signal to the other party: we’re committed, we’re aligned and we’re
ready to move forward. That can help secure confidence (and priority).

3. Sets the Ground Rules

Think of it as scaffolding for the deal. A well-drafted LOI can outline commercial terms, scopes,
timelines and risk-sharing, all while the full contract is in the works.

4. Adds a Layer of Protection

Many LOIs contain confidentiality or exclusivity clauses. That’s especially useful when you’re dealing with
sensitive financial or design information in the early stages.


Cons of a Letter of Intent

1. It Might Not Be Binding

Here’s the catch: unless carefully worded, an LOI isn’t a binding contract.
That means either party could walk away, leaving you exposed after investing time or resources.

2. Creates False Security

Many businesses treat an LOI like a green light but without a signed contract, you’re running on risk.
Costs may not be recoverable, and assumptions can be misaligned.

3. Can Lead to Disputes

If the LOI is vague or lacks clarity on payment terms, scope, or liability, it can become the source of
disagreements, not the solution.

4. May Limit Negotiation Later

An LOI that boxes you into specific commercial terms too early can reduce flexibility in the final contract
stage especially when risks become clearer..


So, Should You Use One?

A Letter of Intent can absolutely serve a purpose but it’s not a one-size-fits-all fix.
Used strategically, it can unlock progress. Used carelessly, it can open the door to risk.

Top Tip:


If you’re using an LOI, make sure:

• It clearly outlines scope, payment terms, and duration

• You limit liabilities to early-stage work

• It doesn’t replace the need for a proper contract

• You get legal input—early


Final Word:


A Letter of Intent is a tool, not a shortcut. Know when to use it, how to protect yourself, and when to walk away.

Written by:
XX, Risk & Advisory Lead at Middleton

Supporting better decisions through clarity, accountability, and legal alignment.