Common use of Binding vs. Non-Binding Terms Clause in Contracts

Binding vs. Non-Binding Terms. To reduce the risk of disputes, the LOI should clearly identify which of its terms are legally binding and which are only statements of intent that are not legally binding. In particular, there should be language clearly stating that the terms of the sale are not legally binding. In the author’s opinion, there should also be a statement expressly disavowing the parties’ obligation to negotiate the terms of the sale. This is particularly important for the seller; if the deal with the buyer does not work out, the seller wants it to be as clear as possible that the seller is free to negotiate a sale with someone else. The provision specifying which terms are binding and which are not binding should itself be identified as a binding term.[6]