Two parties in Rockville agree on the outline of a business sale. The buyer’s broker sends over a two-page letter of intent setting out the price, the structure, a rough closing timeline, and a note that the parties will proceed to definitive documentation. The seller reads it, decides it is preliminary, and signs. Weeks later the seller receives a better offer and tries to walk. The buyer’s lawyer sends a letter explaining that the parties already have a contract.

Most business owners treat a letter of intent as a formality. It is short, it is early, and it usually says something somewhere about definitive agreements to come. The assumption is that nothing is real until the long document is signed.

Maryland’s appellate courts have not embraced that assumption. They have enforced a letter of intent as a binding contract, and they have refused to enforce one, in each case by reading the language the parties actually used. The difference between the two outcomes was not the title of the document. It was the words inside it.

This guide explains what Maryland law actually asks, walks through the two decisions that frame the analysis, identifies the provisions that remain binding even in an otherwise non-binding letter, covers Maryland’s recognition of an enforceable agreement to negotiate in good faith, and sets out the drafting that makes a non-binding letter genuinely non-binding. It sits at the front of our deal cluster, alongside our guides on how to sell a business in Maryland and how to buy a business in Maryland.

A letter of intent, sometimes called a term sheet or memorandum of understanding, is the document that records the shape of a deal before the parties invest in definitive agreements. It typically covers the purchase price and structure, the assets or equity involved, the treatment of debt and working capital, any earnout or contingent consideration, an outline of the indemnification framework, a diligence timeline, and the conditions the parties expect to negotiate.

The essential feature to understand is that most letters of intent are hybrid. They are designed so that the commercial terms are not binding, while a defined subset of provisions is fully binding. That structure is sensible and standard. The risk arises when the drafting is careless, so that the document does not clearly do either thing.

Two commercial realities explain why letters of intent matter beyond their legal status. First, they are where leverage gets spent. The price mechanism, the exclusivity period, the earnout architecture, and the indemnity outline are all far easier to negotiate before the parties have committed to a framework than after. Our post on earnout disputes in Maryland business sales makes this point specifically: the seller protections in an earnout are winnable at the letter of intent stage and very hard to win later.

Second, they change behavior. Once a letter of intent is signed, the seller usually stops marketing, the buyer starts spending on diligence, and both sides begin to treat the transaction as settled in principle. That psychological shift is real even where the legal obligation is not.

Before reaching the cases, understand the interpretive rule that drives them.

Maryland applies an objective approach to contract interpretation. Unless a contract’s language is ambiguous, a court gives effect to that language as written, without concern for the subjective intent of the parties at the time of formation. The inquiry is generally restricted to the four corners of the agreement, and the language is given its customary, ordinary, and accepted meaning. That principle is stated in Cochran v. Norkunas, 398 Md. 1, 16, 919 A.2d 700, 709 (2007), and Maryland courts have applied it consistently since.

For a business owner, the consequence is blunt. If a dispute arises, the following will generally not help you:

• That you understood the letter to be preliminary
• That your broker or advisor told you it was not binding
• That both sides expected a long-form agreement to follow
• That nobody would sell a business on two pages

What will matter is whether the words on the page, read the way an ordinary reader would read them, express an agreement. The objective theory is not a technicality that occasionally produces surprising outcomes. It is the rule, and it is the reason the drafting section later in this post is the most useful part of it.

In Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (2007), four prospective buyers gave a property owner a handwritten letter of intent setting out the key terms of an offer, along with a deposit check. The letter referred to a standard form Maryland Realtors contract to be delivered shortly afterward. The buyers sent the form contract; the seller signed it but did not communicate acceptance, and about a week later took the property off the market. The buyers sued.

The circuit court ordered specific performance. The Court of Special Appeals reversed in Norkunas v. Cochran, 168 Md. App. 192, 895 A.2d 1101 (2006), and the Court of Appeals affirmed that reversal.

The two-part test

The Court began from first principles: a manifestation of mutual assent is an essential prerequisite to the creation or formation of a contract, and manifestation of mutual assent includes two issues, intent to be bound and definiteness of terms. Both are required. A letter that is admirably specific but shows no intent to be presently bound is not a contract, and neither is a letter full of enthusiasm that leaves the essential terms open.

The four categories

The Court then adopted a framework, drawn from Corbin, for classifying preliminary writings. Two of the four categories are the ones that produce contracts:

• The third category covers cases in which the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential, but that other people often include in similar contracts.
• The fourth category covers that same situation with an addition: the parties expressly state that they intend their present expressions to be a binding agreement or contract. The Court indicated that such an express statement should be conclusive on the question of their intention.

The Court then summarized the rule directly: a valid contract generally has been made if a letter of intent properly falls within either the third or the fourth category. See 398 Md. at 13-14.

The holding

Applying that framework, the Court held the letter of intent was not enforceable. Because its language clearly indicated that the parties intended to formalize their agreement through a standard Maryland Realtors contract, the letter constituted a preliminary agreement to agree, which Maryland appellate courts have generally held to be unenforceable. The Court separately held the form contract itself unenforceable because the seller never communicated acceptance.

Falls Garden Condominium Association, Inc. v. Falls Homeowners Association, Inc., 441 Md. 290, 107 A.3d 1183 (2015), arose from litigation between two neighboring community associations over the ownership of parking spaces. On the way to trial the parties signed a letter of intent settling the dispute, which contemplated a lease to be prepared afterward. One side then contended that the letter was not enforceable and objected to terms in the proposed lease. The other moved to enforce the settlement.

The Court of Appeals held the letter of intent enforceable as a binding contract. The reasoning tracked the Cochran framework: the plain language of the letter demonstrated that the parties intended to be bound, and the letter expressed the material terms of the agreement. The intermediate appellate court had reached the same conclusion, reasoning that the letter was unambiguous such that a reasonable observer would conclude the parties intended to be bound.

One further holding is worth close attention, because it shows the limits of the outcome. The Court declined to enforce the proposed lease. That document was a draft that had not been assented to and was therefore not a binding contract, and the Court noted that specific performance is an extraordinary contract remedy available only to enforce a valid contract against a party.

One honest caveat on scope. Falls Garden involved a settlement letter of intent in litigation, not a business purchase, and Cochran involved residential real estate. Maryland does not have a deep body of reported appellate decisions applying these principles specifically to letters of intent in the sale of a closely held business. What these cases supply are the governing contract principles, which are general, and they are the principles a Maryland court would apply.

Placed next to each other, the two decisions form a practical checklist of what pushes a letter toward enforceability and what pulls it away.

The features that make a letter of intent look like a contract, and therefore risk becoming one, include definitive language such as shall sell and shall purchase; a complete set of essential terms with nothing important left open; signature blocks and formalities that mirror a contract; the absence of any clear statement disclaiming binding effect; a deposit or payment tendered on signing; and conduct after signing that reads as performance.

The features that push the other way include a prominent express disclaimer of binding effect; a clear statement that no obligation arises unless and until definitive agreements are executed and delivered; genuinely open material terms; conditional and non-definitive drafting; an identified, limited list of provisions that are binding; and an express right to terminate discussions at any time without liability.

A letter of intent that is non-binding as to the commercial terms is almost never non-binding as to everything. The standard structure identifies specific provisions that survive as enforceable obligations. Sellers frequently skim these because the document has been described as non-binding, which is a mistake: these are the parts that will actually be enforced.

• Exclusivity or no-shop. The most consequential. Discussed in its own section below.
• Confidentiality. Often the only protection over the sensitive financial and customer information a seller is about to hand a competitor’s potential acquirer. Where the buyer is a strategic acquirer in the same market, this provision deserves real scrutiny and may warrant a separate, more robust nondisclosure agreement.
• Non-solicitation. Restricting the buyer from hiring away the employees it meets during diligence. Frequently omitted and frequently regretted. Our guide on non-compete enforceability in Maryland covers the related restrictive covenant framework.
• Governing law and forum. Often expressly made binding, and easy to accept without thinking. These provisions can determine the law and forum governing disputes under the letter of intent itself. They do not automatically govern the later definitive agreements, however, which may contain their own separately negotiated governing-law and forum provisions.
• Expenses. Who bears diligence, legal, and advisory costs if the deal dies.
• Deposits and break fees. Whether refundable, and on what conditions.
• Access and cooperation. What the seller must make available and when.
• Publicity. Restrictions on announcing or discussing the transaction.
• Term and termination. How and when the letter expires, and which provisions survive expiration.

A middle category sits between a binding contract and a document with no legal effect: an agreement to negotiate. Maryland addresses it directly.

In Cochran v. Norkunas, the Court of Appeals noted that a preliminary agreement to negotiate in good faith regarding open terms is an enforceable agreement. That is a meaningful recognition, and it means a party who agrees to negotiate cannot simply disengage while the clock runs.

The Court paired that recognition with an equally important limit: if negotiations fail, no final contract exists, because this type of preliminary agreement does not commit the parties to their ultimate contractual objective. Maryland will enforce the promise to negotiate. It will not manufacture the deal that the negotiation failed to produce.

Two practical implications follow:

• For the party who wants engagement. An express good faith negotiation covenant is worth including, because it converts a vague expectation of continued discussion into an obligation. It is most valuable where one party is investing heavily in diligence and needs the other to stay at the table.
• For the party who wants an exit. If you want a genuine right to walk, do not agree to negotiate in good faith and then rely on the letter being labeled non-binding. Say instead that either party may terminate discussions at any time, for any reason or no reason, without liability.

Note also the interaction with the implied duty of good faith in Maryland contract law generally. As we discuss in our post on earnout disputes, Maryland implies an obligation of good faith governing how a party exercises discretion under a contract, but breach of that implied duty is not an independent cause of action in Maryland and must be pleaded as breach of contract. The same framing applies to a binding good faith negotiation covenant: the claim is for breach of the covenant itself.

Under Maryland’s objective approach, a disclaimer works when the rest of the document is consistent with it. A letter that declares itself non-binding on page one and then reads like a purchase agreement for the next three pages is inviting a court to decide which signal to believe. The elements that make a disclaimer credible:

1. An express, prominent non-binding statement. State plainly that the letter reflects the parties’ current intentions only, does not create any legally binding or enforceable obligation, and that neither party will be bound unless and until definitive written agreements are negotiated, executed, and delivered by both parties. Put it near the front, not buried before the signature block.
2. An identified, numbered list of binding provisions. As noted above, by section number.
3. Conditional rather than definitive language. Not the Seller shall sell and the Buyer shall purchase, but the parties currently contemplate a transaction in which the Buyer would acquire. The verb tense matters more than owners expect.
4. Genuinely open material terms. Leaving real items to be negotiated supports the position that the parties had not yet reached definite agreement on all necessary terms.
5. A clear statement that binding effect depends on definitive agreements. Merely contemplating or referring to a later definitive agreement does not make a letter of intent non-binding. Falls Garden expressly confirms that point. What mattered in Cochran was that the letter’s language objectively indicated that a formal contract was still to follow; three of its four substantive paragraphs referred to the forthcoming Maryland Realtors contract. If non-binding status is the goal, state expressly that neither party will be bound to the proposed transaction unless and until definitive agreements are negotiated, executed, and delivered.
6. An unrestricted termination right. Either party may terminate discussions at any time, for any reason or no reason, without liability to the other, subject only to the binding provisions.
7. Avoid conduct inconsistent with the disclaimer. Avoid tendering a non-refundable deposit, beginning performance, or exchanging correspondence that describes the deal as done unless that conduct is consistent with the intended legal effect of the letter. Partial performance and the context of negotiations are among the factors Maryland courts have identified as potentially relevant to intent to be bound. But where the written language is unambiguous, Maryland’s objective theory generally requires the court to enforce the language as written rather than use extrinsic conduct to alter its plain meaning.
8. Consistency across every draft. Redlines that strip out conditional language while leaving the disclaimer intact create exactly the internal contradiction a litigant will exploit.

Drafting to the opposite objective is equally legitimate. If you want the letter to bind, say expressly that the parties intend to be bound, include all material terms, and state that the definitive agreements will memorialize rather than create the agreement. The Cochran framework indicates that an express statement of intent to be bound carries substantial weight. This is core contract drafting work, and our post on common contract mistakes covers the broader drafting failures that create ambiguity.

Exclusivity, or the no-shop, bars the seller from soliciting, entertaining, or negotiating competing offers for a defined period. Buyers ask for it because diligence is expensive and no buyer wants to fund an auction it might lose. The request is reasonable. Its terms are negotiable, and sellers routinely accept the buyer’s first draft without recognizing what they are giving up.

For the duration of exclusivity, the seller has no alternatives and therefore no leverage. That matters most in the scenario sellers least anticipate: the buyer completes diligence, then returns to reduce the price or add conditions, knowing the seller has spent weeks off the market with no other options in hand.

Seller positions worth pressing:

• Keep the period short. Long enough for the diligence the deal actually requires, not the buyer’s convenience. Extensions can be negotiated if diligence is progressing.
• Condition continuation on the buyer’s diligence. Exclusivity continues only while the buyer is diligently pursuing the transaction and meeting agreed milestones.
• Terminate automatically on a retrade. If the buyer proposes a material reduction in price or a material adverse change to terms, exclusivity ends immediately and the seller is free.
• Carve out unsolicited offers. At minimum, permit the seller to receive and consider a genuinely unsolicited proposal, with a notice obligation to the buyer if that is the negotiated compromise.
• Tie it to financing. If the buyer’s ability to close depends on financing, require evidence of progress as a condition of continued exclusivity.
• Be precise about scope. Whether the restriction reaches ordinary-course conversations, existing relationships, and inbound broker contact should be stated rather than assumed.

1. Reread the letter before you react. Your position depends entirely on which category it falls into under the Cochran framework. Look for an express non-binding statement, the completeness of the material terms, references to definitive agreements, and the list of binding carve-outs.
2. Identify whether any binding provision was breached. Even where the commercial terms are unenforceable, exclusivity, confidentiality, non-solicitation, expense allocation, and any good faith negotiation covenant are live obligations with their own remedies.
3. Preserve the negotiation record. Drafts, redlines, emails, and texts. Where language is ambiguous, the surrounding record can matter, and it will be discoverable either way.
4. Assess conduct after signing. Payments made, performance begun, and other post-signing conduct may matter to questions such as acceptance, formation, or intent to be bound where those issues are genuinely disputed. But if the letter itself is unambiguous, Maryland courts ordinarily enforce its plain language without resorting to extrinsic evidence of what the parties subjectively intended.
5. Total your reliance costs. Diligence expenses, professional fees, financing costs, and lost opportunities, which matter both to a claim and to a negotiated resolution.
6. Do not respond with self-help or public statements. Announcing a deal that may not exist, or disparaging a counterparty, creates new problems.
7. Watch the clock. Maryland’s general civil limitations period is three years from accrual under Md. Code, Cts. and Jud. Proc. Section 5-101. Complex business disputes may be assigned to the Maryland Business and Technology Case Management Program.

If the analysis lands on an enforceable agreement, the framework is covered in our guide on breach of contract in Maryland and Pennsylvania. Note as well the Falls Garden point on remedies: specific performance is an extraordinary remedy available to enforce a valid contract, and a court that enforces a letter of intent will not necessarily enforce whatever draft definitive agreement followed it.

• Assuming the label controls. Titling a document Letter of Intent does not make it non-binding. Maryland reads the language, not the caption.
• Relying on what everyone understood. Under the objective theory, subjective understanding rarely rescues a document whose plain language says otherwise.
• Signing a broker’s form without review. Broker and banker templates vary widely in how carefully they handle binding effect.
• Including every material term while calling it preliminary. Completeness of terms is one of the two components of mutual assent.
• Burying the disclaimer. A non-binding statement on the last page competing with contract language throughout is a fight you may not win.
• Ignoring the carve-outs. Exclusivity and confidentiality are commonly designated as binding even when the transaction terms are not. If the letter expressly makes those provisions binding, the fact that the remainder of the letter is non-binding does not diminish those obligations.
• Accepting the buyer’s exclusivity period as drafted. Length, conditions, and retrade termination are all negotiable.
• Agreeing to negotiate in good faith while expecting a free exit. Maryland recognizes that obligation as enforceable.
• Treating the letter as too early for counsel. It is the stage where leverage is highest and cost is lowest.
• Letting redlines create internal contradictions. Definitive language added in later drafts undermines a disclaimer that stayed put.

It depends entirely on what the document says, and Maryland courts have come out both ways. In Cochran v. Norkunas, 398 Md. 1 (2007), the Court of Appeals held that a letter of intent for the purchase of property was not enforceable, because its language showed the parties intended to formalize their agreement later through a standard form contract, making the letter a preliminary agreement to agree. In Falls Garden Condominium Association, Inc. v. Falls Homeowners Association, Inc., 441 Md. 290 (2015), the same court enforced a letter of intent as a binding contract, because the plain language demonstrated that the parties intended to be bound and the letter expressed the material terms. The difference was not the label on the document. It was the words inside it. Calling something a letter of intent does not make it non-binding, and calling it non-binding in one sentence while writing it like a contract everywhere else invites litigation.

It means what you privately intended is largely beside the point. Maryland courts apply an objective approach to contract interpretation: unless the language is ambiguous, a court gives effect to that language as written, without concern for the subjective intent of the parties at the time of formation. The inquiry is generally restricted to the four corners of the agreement, and the language is given its customary, ordinary, and accepted meaning. That principle is stated in Cochran v. Norkunas, 398 Md. 1, 16 (2007). The practical consequence for a business owner is direct. Testimony that you thought the letter was just a placeholder, that everyone understood the real contract would come later, or that your broker told you it was not binding will not carry the day against a document whose plain language reads like an agreement.

Two things, framed as the components of mutual assent. Cochran v. Norkunas states that a manifestation of mutual assent is an essential prerequisite to contract formation, and that it includes two issues: intent to be bound, and definiteness of terms. The Court also adopted a four-category framework for preliminary writings, and explained that a valid contract generally has been made if a letter of intent falls within either the third or the fourth category. The third covers letters in which the parties express definite agreement on all necessary terms while saying nothing about other, non-essential matters. The fourth covers that same situation where the parties additionally state expressly that they intend their present expressions to be a binding agreement, and the Court indicated that such an express statement should be conclusive on the question of their intention. Read in reverse, that framework is also a drafting map.

Falls Garden arose from litigation between two neighboring community associations over parking spaces. The parties signed a letter of intent to settle the case, contemplating a lease that would be prepared afterward. When one side balked, the other moved to enforce. The Court of Appeals held the letter of intent was enforceable as a binding contract, because its plain language demonstrated that the parties intended to be bound and it expressed the material terms of their agreement. Importantly, the Court drew a line: it enforced the letter of intent, but declined to enforce the proposed lease, reasoning that the lease was a draft that had not been assented to and therefore was not a binding contract, and that specific performance is an extraordinary remedy available only to enforce a valid contract. So the party was bound to the deal it wrote down, but not to the longer document it never agreed to.

Most letters of intent are deliberately hybrid documents: the commercial terms are non-binding, and a defined set of provisions is expressly binding. The provisions customarily carved out as binding are exclusivity or no-shop, confidentiality, governing law and forum, allocation of expenses, any break fee or deposit terms, non-solicitation of employees or customers, access and due diligence cooperation, publicity restrictions, and the termination provision governing how and when the letter expires. These carve-outs matter more than sellers often realize. An exclusivity provision is a real obligation with real consequences, and courts elsewhere have treated breach of exclusivity as the kind of harm that money damages do not readily repair, which opens the door to injunctive relief. Read the carve-out list as carefully as you read the price.

Yes, in a specific and limited form. In Cochran v. Norkunas, the Court of Appeals noted that a preliminary agreement to negotiate in good faith regarding open terms is an enforceable agreement. But the Court paired that with an important limit: if negotiations fail, no final contract exists, because this type of preliminary agreement does not commit the parties to their ultimate contractual objective. In other words, Maryland can enforce a promise to negotiate, but enforcing that promise does not produce the deal. The practical significance is that a party who agrees to negotiate in good faith has taken on an obligation to actually engage, and cannot simply go silent or negotiate in bad faith, while a party hoping that such a clause guarantees a closing has misread it.

Say so clearly, say so prominently, and then write the rest of the document consistently with what you said. Include an express statement that the letter does not create a binding or enforceable obligation and that neither party will be bound unless and until definitive written agreements are executed and delivered by both parties. Identify by section number the limited provisions that are binding. Avoid definitive contract language such as the seller shall sell and the buyer shall purchase, and use conditional framing instead. Leave genuinely material terms open rather than pinning down every element. State that either party may terminate discussions at any time for any reason with no liability. Put the non-binding statement near the front rather than burying it on page four. Under Maryland’s objective approach, consistency between what you declare and how you draft is what makes the declaration credible.

Yes, and that is usually the point of the exclusivity provision. A no-shop clause bars the seller from soliciting, entertaining, or negotiating other offers for a defined period while the buyer completes diligence. From the buyer’s side it is a fair request, since diligence costs real money and no buyer wants to fund an auction. From the seller’s side it is the single most consequential binding term in the document, because it removes the seller’s leverage and its alternatives for the duration. Sellers should negotiate the length, keeping it as short as the diligence realistically requires; require the buyer to be actively pursuing the transaction for exclusivity to continue; provide for automatic termination if the buyer retrades the price or materially changes terms; and consider a carve-out permitting the seller to respond to genuinely unsolicited offers.

Start by rereading the letter, because your position depends on which category it falls into. If the letter was genuinely non-binding as to the commercial terms, the buyer generally may walk, and your remedies are limited to any binding provisions that were breached, such as confidentiality or a commitment to negotiate in good faith. If the letter contained the material terms and the language showed an intent to be bound, you may have an enforceable contract under the Falls Garden line of reasoning. In between, examine whether any binding carve-out was breached, whether the parties acted in ways that suggest a contract was formed, and whether expenses were incurred in reliance. Preserve the correspondence and drafts, since the negotiation record often matters. Maryland’s general civil limitations period is three years from accrual.

Yes, and the review is short and inexpensive relative to what it protects. Two distinct risks justify it. The first is accidental formation: signing something a Maryland court later reads as an enforceable contract because the words on the page said more than you meant them to say. The second, and more common, is that the letter of intent is where the deal’s real leverage is spent. Exclusivity, the price mechanism, the treatment of working capital, the earnout structure, the indemnity architecture, and the allocation of expenses all get set at the letter of intent stage, and each becomes far harder to renegotiate once the parties are drafting definitive agreements around an agreed framework. A seller who signs a bare-bones letter of intent and plans to fight for protections later has usually already lost that fight.