Does a Letter Of Intent (LOI) Commit a Buyer into the Purchase of an Aircraft?

A Letter of Intent (LOI) typically does not commit both the buyer and seller to an aircraft transaction in a legally binding manner. Instead, it is generally considered a non-binding document that outlines the preliminary terms and conditions of a potential sale. While the LOI expresses the parties’ intentions to proceed with negotiations and provides a framework for the transaction, it is not a final agreement, and neither party is legally obligated to complete the sale based solely on the LOI.

An LOI is generally non-binding, meaning that it does not create a legally enforceable contract. It serves as a starting point for negotiations, allowing both parties to outline their expectations and intentions. The LOI outlines essential terms and conditions of the sale, such as the proposed purchase price, payment terms, and any contingencies or conditions. These terms are subject to further negotiation and may change during the course of discussions. Because an LOI is not legally binding, both parties have flexibility to negotiate and adjust the terms as needed. If disagreements arise during negotiations, either party can choose to withdraw from the transaction without legal consequences. An LOI often includes contingencies or conditions that must be met before the sale can proceed, such as inspections, title searches, or financing approval. These contingencies allow the buyer to conduct due diligence and ensure the aircraft meets their expectations. While the LOI is not a binding contract, it is generally understood that both parties should act in good faith during the negotiation process. This means engaging in meaningful discussions and not attempting to undermine the negotiation process. By signing an LOI, both the buyer and seller express their intent to engage in negotiations with the goal of reaching a formal, legally binding purchase agreement. The LOI serves as evidence of this intent. The LOI is typically followed by the drafting and execution of a formal purchase agreement, which is a legally binding contract that includes all the agreed-upon terms and conditions. The purchase agreement is where the legal commitment to the transaction is solidified.

It’s essential for both parties to carefully review and understand the terms of the LOI before signing it, even though it is not binding. Additionally, if the LOI contains any provisions that the parties intend to be legally binding (such as confidentiality or exclusivity clauses), those provisions should be explicitly stated.

While an LOI serves as a critical step in the negotiation process for an aircraft transaction, it does not legally commit the buyer and seller to complete the sale. The legal commitment is established through the execution of a formal purchase agreement, which is binding upon both parties once all terms and conditions are agreed upon.