Every week in Nigeria, a business owner signs something they do not fully understand and finds out too late what it actually meant.
Sometimes they sign a letter of intent believing it locks the other party in, only to watch that party walk away with no consequences. Other times they sign what they think is just a preliminary agreement, a show of good faith, a starting point for negotiation, and then discover in the most uncomfortable way possible that they have already entered a binding contract with obligations they did not see coming.
Both scenarios are expensive. Both are avoidable. And both happen because of a confusion that is remarkably common even among experienced Nigerian business people — the confusion between a letter of intent and a binding contract.
This article is going to clear that up permanently.
Start With What a Letter of Intent Actually Is
A letter of intent, sometimes called an LOI, is a document that two parties use to record their intention to do business together before the full and final agreement is ready. It is the business world’s way of saying “we are serious about this deal, we want to move forward, and here is what we are broadly agreeing to in principle while the lawyers and accountants work out the details.”
You will see letters of intent in property transactions, business acquisitions, partnership discussions, investment negotiations, and major supply agreements. They serve a real purpose. They give both parties enough certainty to invest time and resources in the next stage of a deal without having finalised every term. They signal commitment. They create a framework for the conversation that follows.
But here is where Nigerian business people get into trouble. A letter of intent is generally not supposed to bind you to the full deal. It is an expression of where you are heading, not a declaration that you have arrived.
The word “generally” is doing a lot of work in that sentence. And that is exactly the problem.
Why the Line Between the Two Is Blurrier Than People Think
Most people assume the difference between a letter of intent and a binding contract is obvious. A contract is binding. A letter of intent is not. End of story.
If only it were that simple.
The reality, both in Nigerian law and in practice, is that what makes a document binding has nothing to do with what you call it at the top of the page. Nigerian courts have consistently held that the substance of a document matters far more than its title. A document called a “letter of intent” can be fully binding if it contains the right elements. A document called a “contract” can be unenforceable if it is missing something essential.
What makes a contract binding in Nigeria, as established under general contract law principles applied by Nigerian courts, is the presence of an offer, acceptance, consideration, an intention to create legal relations, and certainty of terms. When those elements are present, you have a contract. It does not matter what you chose to call the document.
So if your letter of intent contains a specific price, a specific deliverable, a specific timeline, and language suggesting both parties are committed to those terms, a Nigerian court may very well look at that document and see a contract. Even if the heading says “Letter of Intent — Non-Binding.”
The Specific Clauses That Change Everything
This is where you need to pay very close attention because this is where most of the damage happens.
Some letters of intent are entirely non-binding. They are genuinely just a statement of direction with no enforceable obligations attached. Both parties understand that nothing is final until the full agreement is signed, and the document reflects that clearly.
But many letters of intent are partially binding. This is actually the most common structure in serious business negotiations and it is the one that confuses people most.
In a partially binding LOI, some clauses are binding and some are not. The clauses setting out the broad deal terms, the purchase price in principle, the proposed structure, the timeline for completing negotiations — these are typically non-binding. They represent where the parties currently stand but can change as negotiations develop.
But certain other clauses are almost always intended to be immediately binding. Confidentiality is one. If you share sensitive financial information during deal negotiations, the confidentiality obligation kicks in immediately regardless of whether the final deal ever closes. Exclusivity is another. If the LOI says you will not negotiate with other parties for sixty days, that obligation is binding from the moment you sign it. Break it and you may be liable.
There are also clauses around who bears the cost of due diligence, what happens if negotiations break down, and how disputes during the negotiation period will be handled. These are often binding from day one.
The problem is that when people see “Letter of Intent” at the top of a document, they stop reading carefully. They assume nothing in it can hurt them. They sign it. And then they breach a binding exclusivity clause by continuing to talk to other buyers, or they share confidential information they received under the LOI without realising they are legally obligated to protect it.
What a Binding Contract Requires in Nigeria
A binding contract in Nigeria is a document that creates enforceable legal obligations. Once signed, neither party can simply walk away without consequences. If you breach a binding contract, the other party can sue you for damages, seek an injunction to stop you from doing something, or in some cases seek specific performance — meaning a court order compelling you to do what you promised.
For a contract to be enforceable in Nigeria it needs to be clear enough that a court can determine what each party agreed to. Vague agreements cause problems. If the contract says “we will pay a fair price for the goods” without defining what fair means or how it will be determined, that clause may be unenforceable because it lacks certainty.
The contract also needs genuine consideration — something of value exchanged between the parties. A promise alone is generally not enforceable in Nigerian contract law. There needs to be something on both sides. Money, goods, services, a promise to do or not do something — but something.
And both parties need to have actually intended to be legally bound. Social arrangements and agreements made in informal or domestic contexts are often treated differently by courts because the intention to create legal relations may not be present. In a commercial context, that intention is usually assumed. Which is another reason why even an LOI with sufficiently commercial language can end up being treated as binding.
Real Situations Where This Goes Wrong for Nigerian Businesses
A Nigerian entrepreneur is in discussions with a potential investor. They sign a letter of intent that includes a clause saying the entrepreneur will not seek other investors for ninety days while due diligence is conducted. Two months in, the investor starts dragging his feet and the entrepreneur, frustrated, begins quiet conversations with another investor. The original investor finds out and threatens legal action based on the exclusivity clause in the LOI. The entrepreneur assumed the LOI was non-binding and is now in a very difficult position.
A property developer in Lagos enters an LOI with a buyer for a piece of land. The LOI specifies the purchase price clearly, sets out the payment structure, and contains language like “the parties agree to proceed on the following terms.” The developer later gets a better offer from someone else and tries to back out, assuming the LOI is just preliminary. The original buyer goes to court. The court looks at the document and finds it sufficiently certain and complete to be treated as a binding agreement. The developer is stuck.
A Nigerian company signs an LOI with a foreign supplier that contains a detailed confidentiality clause. During negotiations the Nigerian company shares information about the supplier’s pricing with a competitor, not realising the confidentiality obligation was immediately binding from the LOI. The supplier discovers this and the deal collapses, along with any prospect of a future relationship.
These are not exotic scenarios. They happen in Nigerian business regularly.
How to Protect Yourself
The most important thing you can do before signing any letter of intent is read it properly. Not quickly, not with a plan to read the full contract later. Read it now, carefully, with the specific question in mind: what in this document is binding on me immediately?
If you are not sure, do not sign until you have asked a lawyer. The cost of a one-hour legal review is a fraction of the cost of a dispute.
If you are drafting or negotiating an LOI, be explicit about what is binding and what is not. Do not leave it to implication. Have a clause that clearly states which provisions are binding and which are subject to the execution of a final agreement. Do not rely on the title of the document to do that work because as we have established, it will not.
If you are entering an LOI and you want it to be genuinely non-binding in its entirety, make sure the language reflects that. Phrases like “subject to contract,” “non-binding,” and “for discussion purposes only” help signal intent but they are not foolproof, especially if the rest of the document contains specific and certain terms that look very much like a concluded agreement.
And if you are on the other side — if you want the LOI to lock the other party in on certain key points — make sure those points are clearly drafted and specifically identified as binding obligations. Do not assume the other party understands what you intend. Write it down.
The Bigger Picture
The reason this distinction matters so much in Nigeria right now is that deal culture is growing. More businesses are entering joint ventures, partnerships, acquisition discussions, and investment negotiations than ever before. More of these negotiations involve letters of intent as a starting point.
And most of the people signing those letters of intent do not fully understand what they are signing.
A letter of intent is not automatically safe just because it is not a “real contract.” And a document is not automatically a contract just because someone calls it one. What matters is what is inside the document, what obligations it creates, and whether those obligations have the legal elements required to make them enforceable.
Know what you are signing. Know what it means. Know what it commits you to.
Because in Nigerian business, the most expensive words are “I thought it was just a letter of intent.”
