Execution of valid contracts is a prerequisite to creation of any legally binding rights and obligations among the executing parties. However, before moving on to detailed definitive contract(s), parties often enter into a letter of intent so as to agree and specify upfront the key terms of the proposed transaction. The idea is to identify and address any major commercial issues between the parties, and at the same time demonstrate their commitment to the transaction.
What then is the legal effect of a letter of intent? Executed at a pre-contractual stage, is it a legally binding document or is it only a means to capture and reflect the intention of the parties on the basic structure of the transaction?