You’ve agreed on a price. The broker sends over a non-binding letter of intent. It says right there in paragraph nine that it’s non-binding, so you sign it and figure the real negotiation starts with the purchase agreement.
Here’s the short version: some parts of that letter almost certainly do bind you, and they’re usually the parts nobody reads closely.
That’s not a reason to avoid signing an LOI. You should sign one — it’s how you find out whether you and the seller actually agree before either of you spends money on lawyers and accountants. But it’s worth knowing what you just committed to.
What “non-binding” usually means
The non-binding part is the deal itself. Price, structure, what’s included — none of that locks in. Either side can walk away, and the terms can move as diligence turns up new information. That’s the point of the document.
Most LOIs then carve out a handful of provisions that are binding. Sometimes there’s a clean sentence saying which ones. Sometimes it’s buried and you have to work it out from context.
The commonly binding pieces:
Exclusivity (the “no-shop”)
You get a window — 30, 60, 90 days — where the seller agrees not to talk to other buyers.
Read this one in both directions. As a buyer, exclusivity is the main thing you’re getting out of an LOI, and a short window is worth pushing back on. If it takes 60 days to finish diligence and you signed for 30, you’re renegotiating from a weak spot.
But it can bind you too. Some LOIs pair exclusivity with a commitment to negotiate in good faith or to pursue the deal diligently. That’s a real obligation, and walking away for no articulable reason inside the window is where disputes start.
Confidentiality
You’re about to see the seller’s customer list, financials, margins, and vendor terms. The confidentiality provision survives the deal falling apart, and it’s fully enforceable.
If you own a competing business — and buyers often do — read this carefully. A confidentiality clause that also restricts what you can do with information you learn can quietly limit how you run your own company. That’s negotiable, and it’s worth negotiating before you sign.
Deposits and expense-sharing
If the LOI has you putting up earnest money, the terms of that deposit bind. Under what conditions is it refundable? Who holds it? What happens if diligence turns up something bad — do you get it back, or only in specific listed circumstances?
Same for cost-splitting language. If the LOI says the parties share the cost of an environmental assessment or an equipment appraisal, that’s an obligation you took on.
Choice of law and dispute resolution
Boring, binding, and it decides where you’d fight about any of the above. Worth a look if the seller is out of state.
The bigger risk: an LOI that’s more binding than you meant
There’s a second problem beyond the carve-outs. If an LOI is detailed enough — price, assets, timing, all the material terms — and the language reads like a commitment rather than a proposal, a court can find the parties intended to be bound regardless of the label on it.
Courts in both Pennsylvania and New Jersey look at what the document actually says and what the parties actually did, not just the heading. A “non-binding” LOI that reads like a contract and gets treated like a contract by both sides can end up enforced like one.
This cuts both ways. Some buyers want more commitment locked in early. That’s a strategy — just make it a deliberate one instead of something you discover later.
What to do before you sign
Find the binding provisions and read only those first. Then decide whether each one is acceptable. This takes ten minutes and it’s the highest-value ten minutes you’ll spend on the document.
Match the exclusivity window to your actual diligence timeline. Then add buffer. Landlord consent alone can eat three weeks, and that’s before you get to customer contracts or financing.
Make your walk-away rights explicit. “Buyer may terminate if diligence results are not satisfactory in Buyer’s sole discretion” is a very different sentence from “Buyer may terminate if material adverse findings are discovered.” One is a decision you get to make. The other is an argument you get to have.
Say what the deposit is contingent on. If it’s refundable, list what makes it refundable.
Get the structure right up front. Asset sale or stock sale changes almost everything downstream — liabilities, contracts, tax treatment. Don’t leave it to the purchase agreement.
Flag the tax question early, with your CPA. Deal structure has real tax consequences for both sides, and sellers often push for structures that help them and cost you. That’s a conversation for your accountant, not your lawyer, and it should happen before the LOI locks the structure in — not after.
The pattern we see most
A buyer signs an LOI with a 30-day exclusivity window because 30 days sounded like plenty. Diligence turns up something that needs work — a lease that requires landlord consent, or customer contracts that need to be reviewed and assigned. Day 28 arrives and nothing is finished.
Now the buyer needs an extension. The seller knows the buyer has spent real money and wants the deal. That’s when the price conversation reopens, and it doesn’t reopen in the buyer’s favor.
None of that is about the legal language. It’s about the calendar. But the calendar was in the legal document.
What to do next
If you have an LOI in hand, the useful move is a read-through focused on the binding provisions and the timeline before you sign — not after. It’s a short review, and it’s much cheaper than renegotiating from behind.
Holmes Business Law works with buyers and sellers of businesses across Pennsylvania and New Jersey — letters of intent, purchase agreements, promissory notes, lease transfers, and contract assignments.