BEWARE OF THE DUTCH LAW LETTER OF INTENT
WHEN embarking on a transaction in the Netherlands more often than not, good and fruitful discussions have taken place with a seller of a business. A letter of intent is
drafted, quickly negotiated and signed. The due
diligence exercise commences and 6 weeks later the
prospective purchaser informs the seller that there is
no interest and therefore no deal. In the thinking of the
no longer interested prospective purchaser all is good.
The letter of intent says that it is non-binding and that
negotiations can be terminated at any time. The Dutch
Seller is unhappy and initiates summary proceedings in
the Netherlands to enforce the closing of the
transaction. The Seller argues that a deal was made
and is to be completed within a specific time line. Yes,
this can happen in the Netherlands. The meeting of
minds determines what has been agreed and not what
has been written in a letter of intent.
GENERAL
Like everywhere else, a letter of intent is a pre-
contractual instrument reflecting preliminary
understandings of one or more parties heading towards
a definitive agreement. In many jurisdictions the letter
of intent is considered to be pre-contractual without a
contractual status and may include specific legal
obligations. In the Netherlands, the letter of intent is
considered to be an enforceable agreement. Terms like
“non-binding” do not have any meaning as a letter of
intent is simply a binding agreement. Recent Dutch case
law has allowed for a more literal interpretation of
agreements under very specific circumstances. This
however does not allow for agreements to be “non-
agreements” even if it is worded in the letter of intent.
In addition, a letter of intent is inherently a summary of
the key features of the definitive agreement and
therefore interpretation issues could arise. To allow
Dutch contract law to become really clear: if we orally
agree a price and the key aspects of a transaction you
in principle have a binding agreement. Of course,
proving that this was agreed is another matter. But we
assure you it can be done.
BEWARE OF THE DUTCH
When operating under Dutch law ensure that the deal
time realizes that the understanding that parties are
not contractually bound until a formal contract is signed
simply does not apply. The Dutch law contract-
In the Netherlands, the letter
of intent is considered to
be an enforceable agreement.
Terms like “non-binding” do
not have any meaning as a
letter of intent is simply a
binding agreement.
formation principles, make clear that the meeting of
minds of the parties override written intent. Simply
stated the execution of a definitive agreement is not a
pre-condition for contractual rights and obligations to
become enforceable.
LETTERS OF INTENT GENERATING PRE-CONTRACTUAL
LIABILITY
If a Dutch court determines that a letter of intent can be
seen to include the material terms of an agreement, it
can enforce the agreement as a definitive contract. If a
contract is not considered to exist, a Dutch court will
assess if one of the parties can be held liable on the
basis that does not require the existence of a complete
contract.
