Letter of Intent (LOI) in Australia: 2025 Guide for Businesses

When is a handshake not enough? In the high-stakes world of Australian business in 2025, a Letter of Intent (LOI) is often the first step in sealing a deal. But despite their growing use, LOIs remain one of the most misunderstood documents in commercial negotiations.

What is a Letter of Intent (LOI)?

A Letter of Intent (LOI) is a document that outlines the key terms of a proposed transaction before the final contract is signed. In Australia, LOIs are common in mergers and acquisitions, property deals, joint ventures, and major supply agreements. They signal serious intent and provide a framework for negotiation, but they aren’t typically binding—at least, not entirely.

Think of an LOI as a ‘pre-contract handshake’ that sets out:

• The main commercial terms (price, timing, structure)

• Key conditions to be satisfied before a deal can proceed

• Timelines for due diligence and exclusivity periods

• Obligations around confidentiality

For example, in a 2025 acquisition of a renewable energy firm, an LOI might state the purchase price, anticipated settlement date, and require both parties to complete environmental due diligence within 30 days.

Legal Status: Binding or Not?

Australian courts have traditionally viewed LOIs as ‘agreements to agree’, which means they’re not fully enforceable like a contract. However, the line isn’t always clear. In 2025, several high-profile disputes have highlighted how certain LOI clauses—such as exclusivity, confidentiality, or break fees—can be binding if drafted that way.

• Binding provisions: Non-disclosure, exclusivity, and cost reimbursement clauses are usually enforceable if clearly worded.

• Non-binding terms: Most commercial terms are stated as ‘subject to contract’ and not legally binding until the final agreement is signed.

The lesson: Clarity is critical. If you intend parts of the LOI to be binding, make that explicit. For example, a Sydney tech startup’s 2025 LOI with an overseas investor included a binding exclusivity period, leading to a legal dispute when the startup entertained a rival bid.

2025 Trends and Policy Updates Impacting LOIs

Several trends are reshaping how LOIs are used in Australia this year:

• Regulatory focus on transparency: The Australian Competition and Consumer Commission (ACCC) has ramped up scrutiny on pre-contractual representations, making accurate disclosure in LOIs more important than ever.

• Digital execution: Electronic signatures and cloud-based document platforms are now standard, but parties must ensure LOIs remain compliant with state-based electronic transactions laws.

• ESG clauses: Environmental, Social, and Governance (ESG) commitments are increasingly included in LOIs for major deals, especially in property and resources.

• Foreign investment review: FIRB (Foreign Investment Review Board) guidance in 2025 has clarified that LOIs involving offshore buyers may trigger early notification requirements.

Practical tip: Document management and digital security are now critical, as LOIs often contain commercially sensitive data.

Negotiating a Strong LOI: What to Watch For

Whether you’re a small business owner or a corporate development manager, a robust LOI can protect your interests and streamline the deal process. Here’s how to get it right in 2025:

• Define binding vs. non-binding terms: Use clear headings and wording. Avoid ambiguity at all costs.

• Limit exposure: Set reasonable exclusivity and confidentiality periods. Avoid agreeing to broad obligations before due diligence is done.

• Include a walk-away clause: Make it clear under what circumstances either party can terminate negotiations without penalty.

• Get the timing right: Set realistic timeframes for due diligence and contract finalisation. This helps avoid misunderstandings and deal fatigue.

Case in point: A Queensland agribusiness in 2025 used a well-drafted LOI to secure a six-week exclusivity window, giving it leverage to negotiate favourable final terms without competition.

Conclusion: LOIs as Strategic Tools in 2025

Letters of Intent are no longer just formalities—they are strategic tools that can make or break a deal. As Australian regulators and courts sharpen their focus on pre-contractual documents, getting your LOI right is vital. Clarity, precision, and up-to-date legal advice are your best allies. Don’t treat the LOI as a mere paperwork exercise; use it as a springboard for a successful negotiation.