4. LOI as a Source or Promoter of Undue Litigation. Aside from the legal problem of the ambiguity and uncertainty inherent in LOI, there is yet another major problem inherent in the document, from a legal standpoint. Namely, precisely because the LOI is basically ambiguous and non_definitive by nature, the document often easily lends itself to different interpretations and understandings at the hands of different parties (or even the courts), and thus lends itself, in turn, to being a fertile source for undue litigation and legal contests for those involved with the use of that document in their transactions.
In most cases, LOIs are not legally binding although many could contain specific provisions that are binding, such as covenants to negotiate in good faith, no_shop or standstill provisions (exclusive rights to negotiate, often coupled with earnest money deposits), and Non_Disclosure Agreements (NDA).