Parts of your letter of intent bind you at signature.

Your letter of intent is mostly a plan. A few sections inside it are a contract. Confidentiality, exclusivity, expense allocation and governing law bind the moment you sign, but only because the letter says so. The caption at the top decides nothing. The binding perimeter is the set of sections you carve in, and you drafted them.

At this size the first letter usually comes from the buyer or the broker’s form, and the seller is often unrepresented until it is signed. So the document creating your first enforceable obligations is one you circulated, from a template you did not write. You also sign the guaranty.

Which parts of a letter of intent are binding when I sign it?

Usually four: confidentiality, exclusivity, allocation of expenses, and governing law and forum. They bind because the letter says they bind, not because they are customary. Price, structure, working capital, escrow, seller employment and closing date are statements of intention only if the letter disclaims them clearly and your conduct matches.

Confidentiality. You are now the one disclosing: your lender, your equity source, your employment situation. If the NDA covers only the seller’s information, fix it here. Make the section mutual and cover your offer terms.

Exclusivity. This is the provision you are actually buying. It stops the seller and broker from running your offer as a stalking horse. Drafted well, it survives termination for a stated period.

Expenses. Each side bears its own. Say so. Silence creates no allocation, and absent a contract or statute each party pays its own costs.

Governing law and forum. Cheap to include, expensive to omit. If exclusivity is breached, you want to know whose law applies and where you file before it is urgent. The choice matters: the cases below are Delaware and New York, and another state may read the same drafting differently. Add a no-third-party-beneficiaries sentence here too. It makes a broker’s or employee’s claim on your letter harder, but does nothing about the broker’s own listing agreement.

What should I try to make binding that the seller will resist?

Three: access to books, records and people; a narrow interim-conduct undertaking; and the right to prepare the first draft of the purchase agreement. Each one converts a courtesy into an obligation, which is exactly why sellers resist. Two of the three are worth asking for anyway.

• Access. Your lender underwrites from documents the seller controls. Draft access as a covenant, not a hope: tax returns, bank statements, payroll registers, the lease, customer contracts, interviews with named managers on notice. If employee contact must wait, say so in writing now.
• Interim conduct. A promise to run the business normally while you are locked in: no unusual distributions, no terminating key staff, no multi-year commitments outside the ordinary course. At this size the full operating covenants live in the purchase agreement, and a broad version here reads as larger-deal drafting and stalls. Narrow it to the exclusivity period and a short list.
• Drafting responsibility. Whoever writes the purchase agreement sets the baseline, and every departure has to be argued for. Say your counsel prepares the first draft, and ask early. Some sellers trade it; some brokers insist their form controls. Nobody can promise it.

Which binding terms in buyer templates actually cost the buyer?

Three: an expense reimbursement triggered by the seller declining to sign, a binding termination right, and a binding expiration date on your offer. All three read as adversarial to seller’s counsel. The first invites a fight you may lose. The second quietly cancels the one thing you bought.

Start with characterization. If your letter calls the payment liquidated damages, a court tests it that way: the harm must have been hard to quantify at contracting, the sum a reasonable forecast of it. Delaware applied that test to a two-tier termination fee and upheld it, because the agreement said the fee was liquidated damages and the parties had estimated what a failed deal would cost. A round number chosen because it stings forecasts nothing. That version is struck as a penalty.

Case: Brazen v. Bell Atlantic Corp., Delaware Supreme Court, 1997 (fee tested as liquidated damages because the agreement said so; upheld).

Then consideration, measured in Delaware at formation rather than by what happens afterward. A seller promised nothing new has an argument; a seller signing mutual binding covenants usually does not, because those covenants are the exchange. Plan on neither theory. Ask for capped, documented out-of-pocket costs, or nothing.

Case: North American Fire Ultimate Holdings, LP v. Doorly, Delaware Supreme Court, February 3, 2026 (consideration measured at formation; a restrictive-covenant case).

A binding termination provision is different. It is not unenforceable. It works, and it works against you. Once either party may terminate on notice, exclusivity goes with the letter unless you drafted it to survive. Most templates do not.

The expiration date is the third. It commits you to walk on a date neither you nor your lender controls. If the file is still open on day thirty, you break your own term or lose the deal.

A reimbursement clause you cannot count on still gets read. It buys little at law and tells the seller exactly who they are dealing with.

How does the drafting decide what binds, section by section?

Four mechanics, and they have to agree with each other: a non-binding declaration, a carve-in naming the binding sections by number, a statement that no contract exists unless and until a definitive agreement is executed and delivered, and a survival clause listing the identical numbers. When they disagree, you bought ambiguity.

• The declaration. One sentence: the letter, other than the identified sections, is a statement of intention creating no binding obligation.
• The carve-in. Name sections by number. Not “the confidentiality provisions.” Section 9, Section 10, Section 11, Section 12 and Section 13.
• The formation disclaimer. No contract for the purchase arises unless and until a definitive agreement is executed and delivered by both parties, and none arises from conduct, course of dealing or drafts.
• Survival. A closing clause stating that the same numbered sections survive termination or expiration, and for how long.

Now the defect that appears constantly. The binding article says “Articles VI through X are binding.” The running text has no article numbers, only bolded headings. The carve-in points at nothing, and a court reconstructs intent from a document meant to make intent obvious. Number every section, then read the carve-in against the numbers and the survival clause against the carve-in.

Will a court read the label “non-binding” or the language?

The language and the conduct, not the caption. Formation turns on whether the parties objectively intended to be bound and whether the terms are definite enough, and intent is generally a question of fact drawn from the document and surrounding evidence. A heading reading “Non-Binding Letter of Intent” is evidence, not a shield over contradictory text.

Case: Eagle Force Holdings, LLC v. Campbell, Delaware Supreme Court, 2018.

The framework many courts use has two types. Type I is a complete deal the parties intend to be bound by, the formal document a formality. Type II commits them only to negotiate open terms in good faith. In the case that framed the distinction, a commitment letter was accepted subject to board approval and satisfactory documentation; those reservations alone did not defeat what the court found to be a binding Type I commitment. It is a federal trial court applying New York law: persuasive, not controlling.

Case: Teachers Insurance and Annuity Association of America v. Tribune Co., S.D.N.Y. 1987.

Delaware adopted Type II and gave it teeth. Where parties expressly agree to negotiate in good faith in accordance with a term sheet, that obligation is enforceable. In the leading case the term sheet itself was labeled non-binding while the express promise sat in the agreements around it. Type II bars renouncing the deal, abandoning negotiations, or insisting on non-conforming terms. Where a trial court finds a deal would have been reached but for the bad faith, it may award expectation damages. That follows the finding; it is not automatic.

Case: SIGA Technologies, Inc. v. PharmAthene, Inc., Delaware Supreme Court, 2013.

Where does a good-faith negotiation covenant cut against me?

Both directions, and mostly at you. In a small acquisition the party more likely to walk after signing is the buyer. Lenders decline. Diligence finds add-backs that do not hold. The landlord refuses to assign the lease. Each is a reason you leave, and leaving for a real reason is not bad faith.

The exposure comes from the covenant, not the letter. Absent an express promise to negotiate in good faith, Delaware has generally not imposed one on a letter that disclaims binding effect, and other states vary. But sign the covenant at a stated multiple, then demand a different structure with no documented reason, and the seller’s claim starts to look like the one Delaware has recognized.

If you want it, buy it with precision. Make lender approval, satisfactory earnings quality and lease assignment express conditions. Say you may terminate if financing acceptable to you in your discretion is unavailable, and that adjusting terms in response to diligence findings is not bad faith. Many first-time buyers are better served by exclusivity plus access and no covenant.

Exclusivity protects you. A good-faith negotiation covenant protects the seller from you. Know which one you just signed.

How does SBA 7(a) financing change what belongs in the letter?

Three things: how long exclusivity runs, how the seller-note paragraph is drafted, and how honest your closing-date language is. Stated as of September 2026, SOP 50 10 8, effective June 1, 2025, governs applications now. SBA issued SOP 50 10 8.1 by notice dated August 14, 2026, effective October 1, 2026.

The procedure is revised often, and a lender applies the version in force when your SBA loan number issues, not the one in force at signature. A letter signed now may be underwritten under the later version, which revises the change-of-ownership and equity requirements. Ask your lender in writing which version your file sits under. Treat no SBA rule here as permanent.

Guidance: SBA SOP 50 10 8 (effective June 1, 2025); SBA Information Notice 5000-880695 (August 14, 2026) issuing SOP 50 10 8.1 (effective October 1, 2026).

Two rules drive drafting under the version in force as this is written. A complete change of ownership requires an equity injection of at least ten percent of total project costs. Seller debt counts toward it only if subordinated and on full standby, no principal and no interest for the life of the 7(a) loan, and then for no more than half the injection. A letter promising the seller interest from month one may not survive underwriting. Say instead that the note will be on the standby terms the lender and SBA require.

The second rule makes this personal. Holders of at least a twenty percent ownership interest generally must guarantee the loan, and the same regulation lets SBA or the lender require guarantees from others regardless of ownership. Structuring under twenty percent is not a reliable way out.

Law: 13 C.F.R. 120.160(a).

On timing, write nothing you cannot control. Nobody, including your lender, decides SBA approval on your schedule or can say when a loan number will issue. Set exclusivity against the process your lender describes, with extensions tied to milestones — application submitted, valuation ordered, conditional commitment issued — not a fixed date that expires while the file is live.

What should I do with my letter of intent before I sign it?

Work the binding article, not the price paragraph. Price is a negotiation you will have again. The binding article is a contract you sign once. Number it, reconcile it, add the formation disclaimer, strike the template terms that cost you.

• Number every section, then the schedule of binding sections. Read one against the other.
• Confirm the survival clause lists the identical numbers as the carve-in.
• Add the formation disclaimer: no contract until a definitive agreement is executed and delivered, and drafts and conduct create nothing.
• Make confidentiality mutual; check that your NDA runs long enough.
• Set exclusivity against your lender’s process, with milestone extensions, surviving termination.
• Delete the seller-pays-your-expenses trigger, the termination right and the expiration date.
• Ask for access, a narrow interim-conduct undertaking, and the first draft.
• Decide consciously about a good-faith covenant; if you want one, write your exit conditions in.

Then run the test. Section by section, say out loud: this binds, this does not, and if it were deleted, here is what happens. If you cannot do that for every section, you are not ready to sign. It is ready to be marked up.