What is a 'letter of intent'?

A 'letter of intent' is primarily used as a preliminary agreement that outlines the intent of the parties to enter into a formal contract in the future. It typically signifies that the parties have reached an understanding on key terms but have not yet finalized the complete contractual obligations. This document can serve as a useful tool in negotiations, allowing the involved parties to express their intentions clearly while still working towards a more detailed contract.

This approach provides a level of commitment from both sides while allowing flexibility as the final contract terms are developed. It can also help in preserving time-sensitive elements of a deal, ensuring that both parties are aligned on the core terms before moving forward.

The other choices do not represent accurate descriptions of a letter of intent. A final contract agreement formalizes all the terms agreed upon by the parties, while a cancellation document would terminate an existing contract, and a statement of future obligations typically pertains to specific commitments by a subcontractor rather than the general intent to contract.