Netherlands: Letters of Intent in M&A Transactions – When Can a “Non-Binding” Agreement Become Binding?

In most business acquisitions, the relationship between buyer and seller begins with a Letter of Intent (LOI). Although often viewed as a preliminary document, an LOI can play a critical role in establishing the framework for negotiations and setting expectations between the parties.

Questions frequently arise regarding the legal significance of an LOI, particularly where one party seeks to withdraw from negotiations before a final acquisition agreement has been signed. A recent judgment of the District Court of Amsterdam highlights the importance of carefully drafting these provisions and understanding the limits of so-called “non-binding” clauses.

What Is a Letter of Intent?

A Letter of Intent generally records the parties’ intention to pursue a transaction and outlines the principal terms on which they are prepared to negotiate a definitive agreement.

Typical provisions include:

Exclusivity

The buyer is granted an exclusive period to conduct due diligence. During this period, the seller agrees not to negotiate with or offer the business to third parties. This protects the buyer’s investment in advisers, time and transaction costs.

Confidentiality

Information exchanged during the transaction process must remain confidential and may not be disclosed to third parties.

Break-Up Fee

The parties may agree that one party will compensate the other if the transaction is abandoned under specified circumstances, particularly where significant costs have been incurred.

Non-Binding Clause

Many LOIs contain a provision stating that the document, or specific sections of it, is not legally binding and that the parties will only become contractually committed upon execution of the final transaction documents, such as a Share Purchase Agreement (SPA).

While an LOI is not intended to be a purchase agreement, parties should exercise caution. Under Dutch law, an LOI that sets out transaction terms in sufficient detail may become legally significant, potentially creating obligations beyond those originally intended.

For sellers, this can provide additional comfort that a transaction will proceed. Buyers, however, often seek to preserve flexibility, particularly where completion remains subject to satisfactory due diligence findings or third-party approvals.

Amsterdam District Court: Limits of a Non-Binding Clause

A recent judgment of the District Court of Amsterdam (ECLI:NL:RBAMS:2026:3309) illustrates how these issues may arise in practice.

The parties had agreed that, except for specific provisions relating to exclusivity, confidentiality and governing law, the LOI would not be legally binding until a Share Purchase Agreement had been executed.

The LOI also included:

• A condition requiring approval from the buyer’s shareholders and investors; and

• A contractual penalty of up to €50,000 if failure to obtain such approval resulted in additional costs for the seller.

Following completion of the due diligence process, the buyer informed the seller by email that it was comfortable with the findings and wished to proceed. The seller subsequently circulated a draft SPA.

Shortly thereafter, however, the buyer withdrew from the transaction after failing to obtain investor approval.

The seller argued that the buyer’s conduct had created a legitimate expectation that the transaction would proceed and that the non-binding clause had effectively ceased to apply.

The court rejected that argument.

According to the court, the buyer’s positive due diligence assessment, the circulation of a draft SPA and the progression of negotiations were not sufficient to override the expressly negotiated non-binding clause. The buyer remained entitled to rely on the approval condition contained in the LOI and accepted liability only for the agreed contractual penalty.

The court therefore refused the seller’s claim.

Importantly, the judge emphasised that the parties were sophisticated commercial parties represented by legal advisers and were therefore bound by the contractual wording they had negotiated.

An Important Qualification

It should be noted that this decision was issued in preliminary relief proceedings.

In such proceedings, the court assesses only whether a claim appears sufficiently plausible to justify immediate relief. The judgment does not finally determine the parties’ rights.

Substantive proceedings may still follow, and the court expressly noted that a judge considering the matter in full proceedings could potentially reach a different conclusion after reviewing all relevant facts and circumstances.

Practical Considerations

This case ended favourably for the buyer. However, Dutch case law demonstrates that outcomes can differ where LOIs are drafted ambiguously or where the conduct of the parties creates conflicting expectations.

Businesses involved in acquisitions should therefore:

• Clearly distinguish between binding and non-binding provisions;

• Specify which clauses remain enforceable during negotiations;

• Carefully draft approval conditions and due diligence protections;

• Avoid creating unintended commitments through correspondence or conduct; and

• Review LOIs with legal advisers before signing.

Although often viewed as a preliminary document, a Letter of Intent can significantly influence the parties’ legal position throughout a transaction process.

Careful drafting at the outset can help avoid costly disputes later in the deal.

By Hocker, Netherlands, a Transatlantic Law International Affiliated Firm. 

For further information or for any assistance please contact netherlands@transatlanticlaw.com

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