The LOI Trap, When Non-Binding Still Locks the Deal

By Adv. Alex Blumin

Most people who put a Letter of Intent (LOI) or deal Term Sheet on the table treat it like a waypoint. The header says Non-Binding. Everyone is still “aligning.” Price, structure, and conditions feel movable.

In live M&A, investment, and share-purchase deals, that assumption is expensive. An LOI often sets the frame the parties will operate in for the next sixty days, even when large chunks of it are not meant to bind.

This is not about a founders’ partnership memo (I covered that separately). This is about a buyer-seller or investor-company LOI: the document that opens diligence and, quietly, locks part of the deal.

The “Non-Binding” header does not cover every clause

First mistake: reading the title and assuming it applies to the whole paper. In Israeli practice, and in deals that import a U.S. template, a typical LOI splits in two:

1. Non-binding pieces, indicated price, deal structure, diligence assumptions, a rough timeline.
2. Binding pieces, exclusivity / no-shop, confidentiality, expense allocation, governing law, and sometimes a break fee or a duty to negotiate in good faith.

If you signed without marking which is which, a court or arbitrator will not stop at the header. It will look at wording, how the parties behaved, and whether you started performing under the document. A clean title does not cure sloppy drafting.

What actually locks, even when price is “still open”

Here is the mid-market pattern that keeps showing up. Parties agree on a number, write “subject to due diligence,” and sign 30-60 days of exclusivity. The seller stops talking to other buyers. The buyer opens a data room. Counsel starts running.

Halfway through diligence, something breaks: a key customer with no contract, IP never assigned from the founders, a quiet tax exposure, or a forecast that was aspirational. The buyer wants the price down. The seller says, “We signed X.” The buyer says, “That was non-binding.”

Both are partly right, which is the problem. Price may not bind. Exclusivity usually does. The seller spent two months off-market. The buyer spent real money on diligence. Nobody walks away clean.

So even when the price clause is non-binding, the exclusivity clause turns the LOI into a commercial lock on process. It is not a sale agreement. It is an agreement about a process, and that process is costly.

Three clauses founders and buyers routinely miss

1. Exclusivity with no exit

“Seller will not negotiate with third parties for 60 days” sounds fine until there is no off-ramp if the buyer slows down, expands diligence without end, or rewrites the deal midstream. Exclusivity without an exit (or at least a right to terminate if the buyer is not progressing in good faith) traps the seller and arms the buyer.

2. A price written as if it were final

There is a difference between “the parties intend a deal at X, subject to diligence” and “the price is X.” Language that reads final, even inside a non-binding LOI, creates a commercial expectation that is hard to unwind without burning trust, and sometimes a reliance argument. If price is truly open, say so sharply: a range, an adjustment formula, and exactly what can move it up or down.

3. Conditions that look routine

“Subject to board approval” or “subject to financing” sounds standard. In practice, a wide condition gives one side a veto with little skin in the game. If you are the seller, ask: when is the condition deemed failed? Who decides? What happens to exclusivity if financing “didn’t come through”? If the LOI is silent, the answer arrives in a crisis.

When an LOI starts to bind almost everything

Sometimes parties start acting like the deal is done: moving money, introducing the buyer to customers, swapping employees, or publishing an announcement. At that point, even a Non-Binding stamp tells a weaker story than the conduct.

The practical test I use with clients is simple: If the other side disappeared tomorrow, what could you rely on, and what have you already burned? If the answer is “only exclusivity and confidentiality,” you are in a sane place. If the answer is “the whole deal, because we already started performing,” your LOI stopped being a waypoint a while ago.

What to do before you sign

You do not need to turn an LOI into a full purchase agreement. You need to make it a conscious document:

• Mark expressly which clauses bind and which do not.
• Cap exclusivity in time, scope, and exit rights.
• Write price as a range or formula, not a fact, if diligence is still ahead.
• Narrow conditions to what is truly external and testable.
• Do not start performing the deal until you have an SPA (or another clear binding frame).

Takeaway

A letter of intent that does not bind on price can still lock you on process. Before you sign, do not ask “Is this binding?” Ask: “What exactly binds, and what is the commercial cost of exclusivity if the deal never closes?” That answer is worth more than any Non-Binding header.

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FAQ

Is a letter of intent binding under Israeli law? It depends on the drafting and the parties’ conduct. A Non-Binding header does not automatically cover every clause. Exclusivity, confidentiality, and expense provisions are often binding; price and structure may not be, unless the wording and behavior say otherwise.

How is a deal LOI different from a founders’ term sheet? A deal LOI typically sits between buyer and seller (or investor and company) and frames price, diligence, and exclusivity. A founders’ memo frames ownership, contributions, and exit mechanics. Both can become binding; the risks are different.

Do you need an LOI before due diligence? Not always. Sometimes an NDA and short principle terms are enough. An LOI helps when you need exclusivity, a price frame, and a clear process, but only if you draft it knowing what locks and what stays open.

CTA: Before you sign an LOI or Term Sheet, initial conversation · Adv. Alex Blumin · Updated: 24 Oct 2026

Related: Share-transfer friction (SPA) · Buyer NDA before due diligence