Contracts

Letter of Intent in Singapore: Can a “Non-Binding” Agreement Still Be Legally Binding?

Letter of Intent
02 Nov

Summary: A Letter of Intent (LOI) is commonly used to record preliminary commercial terms while parties work towards a formal contract. However, labelling an LOI “non-binding” or “subject to contract” does not necessarily prevent individual provisions from being legally enforceable. In NPS International School Pte Ltd v Raffles Assets (Singapore) Pte Ltd [2026] SGHC 198, the Singapore High Court examined this distinction and found that specific obligations under an LOI were binding despite those labels. The decision offers practical lessons for construction clients, contractors and consultants on drafting clear preliminary agreements, managing deadlines and reducing contractual risks.

Understanding the Legal Effect of a Letter of Intent

A Letter of Intent (LOI) is a preliminary document that records the parties’ proposed commercial arrangements before a more comprehensive agreement is finalised. In construction, it may be used to outline the proposed scope of work, price, payment arrangements, commencement requirements or other key terms while the parties negotiate the main contract.

An LOI can help projects move forward while outstanding matters are resolved. However, it can also create uncertainty if the parties do not clearly distinguish between provisions intended to be binding immediately and those that remain subject to a formal contract.

The recent Singapore High Court decision in NPS International School Pte Ltd v Raffles Assets (Singapore) Pte Ltd [2026] SGHC 198 highlights why this distinction matters.

Case Study: NPS International School v Raffles Assets

The dispute concerned a proposed lease of premises at 51 Merchant Road for NPS International School’s intended use as a Foreign Systems School.

The parties signed an LOI headed “NON-BINDING, AND SUBJECT TO CONTRACT & BOARD APPROVAL”. Under its terms, NPS was required to obtain the relevant regulatory approvals within eight weeks. The LOI also required NPS to apply promptly, use its best endeavours to obtain the approvals expeditiously and provide copies of its applications to the landlord.

NPS paid an initial deposit of S$500,000, which was intended to be applied towards the security deposit for the proposed lease. The LOI specified circumstances in which the deposit could be returned, including where the necessary approvals were not obtained by the deadline and the failure was not due to NPS’s default.

However, the approvals were not obtained by the deadline, and no tenancy agreement was concluded. Raffles refused to return the deposit, while NPS sought its recovery. Here, the central question was whether the LOI could impose enforceable obligations despite its express non-binding wording.

In its grounds of decision dated 14 October 2026, the High Court held that the LOI was binding at least in relation to paragraphs 3, 11 and 23. These provisions addressed regulatory approvals, the initial deposit and the parties’ obligation to negotiate in good faith towards a tenancy agreement. The court also found that NPS had breached paragraph 3 by failing to meet its obligations concerning the regulatory approvals. Its claim for the return of the deposit was dismissed, and damages were ordered to be assessed. The court subsequently declared paragraphs 5 and 10 binding as well.

The decision demonstrates that the legal effect of an LOI depends on its terms and the circumstances surrounding the parties’ dealings, rather than its heading alone.

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Three Key Lessons for Construction Contracts

  1. “Subject to Contract” Does Not Automatically Remove All Obligations

Parties may assume that an LOI carries no legal consequences until a formal contract is signed. However, the court’s decision illustrates that specific provisions may still be enforceable if the wording and surrounding circumstances show that the parties intended them to have immediate effect. This is particularly relevant to construction contracts, where preliminary arrangements may cover mobilisation, design work, procurement or other activities before the main contract is executed.

For example, an LOI might state that the final construction contract remains subject to negotiation while requiring a contractor to complete specified preliminary services within an agreed period. If the parties intend those services and their associated payment terms to be binding, the LOI should say so expressly.

  1. Deadlines and “Best Endeavours” Obligations Matter

The court found that NPS had failed to apply promptly for the necessary approvals and to use its best endeavours to obtain them expeditiously. The judgment considered the practical steps taken, their timing and whether the approval process could have been pursued more effectively.

For construction projects, similar obligations may arise in connection with regulatory submissions, design approvals, procurement, access arrangements and project commencement.

A best endeavours obligation should not be treated as an empty formality. Parties should understand what action is required, identify foreseeable obstacles, maintain appropriate records and act within the agreed time frame. Where approval deadlines affect the project programme, early action and clear communication can help reduce the risk of disputes.

  1. Deposit and Payment Terms Need Careful Drafting

The S$500,000 deposit was a significant part of the dispute. The LOI specified circumstances in which it could be returned, but NPS’s failure to comply with its obligations affected its claim. A well-drafted LOI should identify the purpose of each payment, the conditions governing its release or return, the relevant deadlines and the consequences of default or termination.

In construction, preliminary payments may cover mobilisation, advance procurement, design work or other early-stage activities. An unclear LOI can leave parties uncertain about whether those payments are refundable, when repayment is due and what happens if the main contract is never signed.

How Businesses Can Reduce Letter of Intent Risks

Before signing an LOI, employers, contractors and consultants should consider the following measures:

  • Identify binding provisions: State clearly which clauses take immediate effect and which remain subject to the execution of a formal contract.
  • Define the scope of work: Specify authorised activities, deliverables, exclusions and any limits on the work that may proceed before the main contract is signed.
  • Set clear deadlines: Establish dates for approvals, submissions, commencement and completion of preliminary activities.
  • Clarify financial arrangements: Document deposits, advance payments, payment milestones, refund conditions and any agreed financial limits.
  • Address termination and expiry: Explain what happens if negotiations fail, approvals are refused or the LOI expires before a formal agreement is concluded.
  • Keep a written record: Retain approvals, correspondence, instructions, submissions and evidence of steps taken to comply with the LOI.

For construction projects, quantity surveyors can also help review preliminary cost commitments, assess payment exposure and clarify the commercial implications of work undertaken before the main contract is finalised. Contract and dispute advisory support can help parties identify ambiguities and address potential disagreements before they escalate.

Conclusion: Treat Every LOI as a Commercial Commitment

The decision in NPS International School v Raffles Assets reinforces an important principle: an LOI should not be assumed to be entirely non-binding simply because its heading says so. Individual provisions may create enforceable obligations, and failure to comply with them can have financial consequences. For businesses involved in construction and property development, careful drafting is essential. Clearly defined obligations, realistic deadlines, transparent payment arrangements and proper documentation can help parties manage uncertainty while formal contract negotiations continue.

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Frequently Asked Questions

Is a Letter of Intent legally binding in Singapore?

Answer: It can be. The legal effect depends on the wording of the LOI, the specific provisions involved, the parties’ intentions and the surrounding circumstances. Some provisions may be binding even if the document is labelled “non-binding” or “subject to contract”.

What happens if a party breaches a Letter of Intent?

Answer: The consequences depend on whether the relevant provision is legally enforceable, the nature of the breach and the remedies available. Depending on the circumstances, a breach may result in a claim for damages or other relief.

Should construction work begin under an LOI?

Answer: Work may begin under an LOI where the parties have clearly agreed on the permitted scope, payment arrangements, duration, risk allocation and conditions for proceeding. However, commencing work without adequate contractual safeguards can expose both parties to disputes.

How can a quantity surveyor help with an LOI?

Answer: A quantity surveyor can assist with preliminary cost assessments, payment terms, scope clarification, commercial exposure and documentation. This can help parties understand the financial implications of proceeding before a full contract is executed.

Disclaimer: This article is for general information only and does not constitute legal advice. Parties should obtain appropriate professional advice on their specific contractual circumstances.

 

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