The rationale for Letters of Intent is clear, parties want to record elements of consensus between them before having the opportunity to conclude an all-encompassing contract on the particular proposed deal, project or transaction.

However, the use of Letters of Intent is not without its potential pitfalls. Just like a final contract needs to be carefully negotiated and drafted, so does a Letter of Intent.

It should be based on what is known and what is intended in the early stages of the project.

The most important question when considering a Letter of Intent is whether it should be legally binding, as a whole or in part.

This will depend on the context of the document.

For example in the construction sector, the length and complexity of projects mean it may be in the interests of parties to start to carry out pre-works, to obtain regulatory approvals or set about obtaining funding.

In these circumstances, a legally binding Letter of Intent may be preferable.