A contract law attorney clarifies the boundary between an offer, a Letter of Intent and a contract

When does an offer, a letter of intent (LOI) or a term sheet remain a step in negotiations according to Swedish law, and when have you actually concluded a binding contract? The line between negotiation and contractual commitment can be unclear, and this is where a contract lawyer can make a real difference. The question is central in European contract law and has a direct impact on risk, liability and business relationships.

In this text we set out how Swedish contract law views offers, letters of intent and contracts, the typical pitfalls, and how specialist advice can reduce the risk of being bound at the wrong time, or conversely, finding yourself without a valid agreement when you thought one existed.

Offer, letter of intent and contract as stages in one process

Most transactions follow a similar legal sequence: information, negotiation, offer, a possible letter of intent/term sheet and a final contract. Contract law traditionally follows the offer-and-acceptance model. A business proposal is often treated as an offer, while the customer’s “yes” or signature constitutes acceptance, and a contract arises if the terms offered and accepted match.

A letter of intent, an LOI or a term sheet is often used to describe the framework for a future deal. This is where the boundary becomes delicate: the document is intended to express intent, yet parts of it may still be binding depending on the wording and the parties’ conduct.

A contract may arise in writing, orally or by conduct (where parties behave as if a contract exists). It is therefore important to distinguish what is merely negotiation or a non-binding statement of intent from what constitutes a contract in legal terms.

Offer – when does it become binding under contract law?

An offer is often more than a “suggestion”. In many cases it is a binding offer for a certain period. If the recipient accepts within the acceptance period, the parties are bound by the offer’s content, provided the acceptance corresponds to the offer.

Typical risks a contract lawyer sees around offers include:

• The offer contains unclear drafting on scope, delivery or price.
• The supplier assumes the offer is not binding until a formal agreement is signed, but has not stated this clearly.
• The customer assumes the offer is a fixed price, while the supplier views it as an estimate.
• The offer refers to general terms that the counterparty has never seen.

If you wish to avoid an offer being treated as a binding contract, clear reservations may be required, for example stating it is a “non-binding letter of intent” or that it is “subject to contract”. Even then, an overall assessment applies: if the parties start to act as if a contract exists, commitment may still arise.

When is a letter of intent merely an expression of intent and when does it bind?

A letter of intent is often used to signal that the parties agree the main contours of a deal while details remain. The heading “Letter of Intent” is not decisive. Contract law looks to substance and the parties’ intention rather than the label.

It is common for some parts of a letter of intent to be expressly binding, while others are non-binding. Binding parts can include:

• Confidentiality undertakings.
• Exclusivity clauses (an obligation to negotiate only with a specific party).
• Allocation of costs for due diligence or other investigations.
• Agreements on governing law and dispute resolution forum.

Other elements, such as pricing, structure and timelines, are often stated as aspirations. However, if drafting is too categorical, or the parties begin to act in accordance with the LOI as if the deal were already concluded, the document can be assessed as wholly or partly binding. Clear use of “binding letter of intent” versus “non binding letter of intent” language helps, but must be consistent with conduct.

This means a letter of intent is not automatically “risk-free”. A contract law attorney can help draw a firm line between binding and non-binding provisions and ensure the drafting reflects the parties’ true intention. Where relevant, they can also support a draft letter of intent and a draft term sheet to align legal and commercial aims.

Negotiation versus commitment: where is the line?

The distinction between negotiation and commitment is not merely theoretical. In complex deals, parties may first “agree” by email or in a letter of intent and then work towards a more comprehensive agreement. Meanwhile they may start to behave as if the contract already exists, for example by:

• Starting delivery or implementation.
• Exchanging sensitive information as if confidentiality were already in place.
• Communicating internally or externally that “the contract is done”.
• Making investments that presuppose the deal will happen.

Under Swedish contract law, a contract can arise once the parties have reached a sufficiently concrete agreement on the key terms, even if a more extensive document is intended later. Phrases such as “subject to contract” or “subject to board approval” reduce the risk of premature commitment, but they must be applied consistently and in accordance to conduct.

There is also a risk of liability for negligent conduct in negotiations, for example if a party breaks off far-advanced discussions without basis after the counterparty has made significant investments. Such liability is assessed case by case, and timely advice helps manage this risk.

Common pitfalls around offers, letters of intent and contracts

In practice, recurring patterns appear in disputes and disagreements. Common pitfalls include:

• Using standard LOI or term sheet templates without adapting them to the deal structure.
• Intending an LOI to be non-binding, yet drafting it so tightly that it reads as a concluded contract.
• Email exchanges after the offer effectively vary terms without updating the formal agreement.
• Signing “for form’s sake” despite not substantively being in agreement.
• Missing clear documentation of which parts are preliminary and which are finally agreed.

A recurring misconception is that “nothing is binding until we have a signed contract”. That is not always correct. A combination of a binding offer, a letter of intent, email correspondence and actual conduct can lead to a contract arising well before formal signature.

How a contract lawyer can help with contracts and negotiation

Bringing in support at the right stage can save time and money. A contract law attorney can:

• Structure the journey from the first offer and letter of intent through to the final contract.
• Draft clear reservations so the parties do not become bound too early.
• Identify which parts of a letter of intent should be binding and which should not.
• Review correspondence (for example emails) that risks being treated as contractual content.
• Prepare or quality-assure templates that work in practice for your organisation.

For companies and organisations that regularly negotiate larger transactions, ongoing advice can function as a safety net. A contract lawyer can stay in the background and ensure the commercial dialogue does not have unintended legal consequences.

Contract law advice in practice – when to seek help

You should not need to wait for a dispute. It is often more cost-effective to get help in advance than to manage issues afterwards. Typical situations where legal support is advisable include:

• Major delivery or collaboration agreements where the offer and the letter of intent play a significant role.
• Entering a new type of transaction, for example international deals or complex IT and SaaS structures.
• Receiving a counterparty’s draft letter of intent or draft term sheet and needing a clear risk review.
• Multiple versions of offers, schedules and emails circulate and it is unclear what has actually been agreed.

With focused advice you can draw a clear line between negotiation, intent and binding contract. That reduces the risk of misunderstandings, disputes and unintended commitment.

At Morling Consulting, our contract lawyers help companies and organisations across Europe to analyse offers, letters of intent and contracts, prepare effective templates, and support negotiations so legal risks are managed before they become operational problems.