Is a term letter binding?

It can be binding if it satisfies intent, consent, attribution, and retention tests for electronic records; whether it is binding depends on language, signatures, and any disclaimers reserving drafting of a final contract.

Yes. Electronic signatures are accepted under the ESIGN Act and UETA where applicable, but certain exceptions exist and higher authentication may be advisable for high-value deals.

Do I need a notary or witness?

Not usually for a simple term letter, but state-specific requirements or internal policy may require notarization or witnesses for certain authority confirmations.

What if a signer lacks authority?

A signer without proper authority may render commitments unenforceable; confirm delegation or corporate resolution before accepting signatures.

How should I store executed letters?

Store digitally with an immutable audit trail, retain according to IRS and industry rules, and ensure backup copies are preserved for the retention period.

How do I correct errors after signing?

Execute an agreed amendment or replacement letter signed by all parties; avoid unilateral changes and preserve audit logs of the correction process.

Electronic Signature
Templates
Legal
Legal Principal Term Letter

Legal Principal Term Letter

This template is fully customizable. Edit the text, fill out the fields, and send it for signature. Give it a try!

LEGAL PRINCIPAL TERM LETTER

This Principal Term Letter (the "Letter") is made and entered into as of by and between Client Name: whose principal place of business or address is , and Counterparty Name: whose principal place of business or address is .

RECITALS

WHEREAS, Client Name desires to obtain the principal terms for a proposed transaction pursuant to which Counterparty Name may provide financing or other principal consideration on the terms set forth in this Letter; and

WHEREAS, the parties intend that this Letter will set forth the principal commercial terms to facilitate the preparation of definitive transaction documents, subject to the conditions and binding provisions set forth below; and

WHEREAS, the parties acknowledge that certain provisions of this Letter are intended to create binding obligations while others are non-binding, as expressly provided herein.

NOW, THEREFORE

In consideration of the mutual covenants and agreements contained in this Letter and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. PRINCIPAL TERMS

1.1 Commitment Amount: The principal amount of the proposed transaction shall be (the "Commitment").

1.2 Proposed Closing Date: The parties anticipate a closing of the transaction on or about subject to satisfaction or waiver of the conditions set forth in Section 3.

1.3 Term / Maturity: The obligation arising under the definitive documents shall mature on or about or as set forth in the definitive agreement.

1.4 Interest / Return: Interest or return shall accrue at a rate of per annum, calculated on a [30/360 or actual/365] basis as agreed in the definitive documentation.

1.5 Security and Priority: The Commitment shall be secured by the following collateral and priority:

1.6 Fees and Expenses: Client Name agrees to pay arrangement fees of and to reimburse reasonable legal, accounting and other out-of-pocket expenses incurred by Counterparty Name in connection with negotiation and documentation of the transaction.

1.7 Exclusivity: For a period of days from the Effective Date, Client Name agrees not to solicit, negotiate or enter into commitments with other potential providers of the same or substantially similar financing with respect to the principal transaction described herein.

2. REPRESENTATIONS AND WARRANTIES

2.1 Each party represents and warrants that it is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, has full power and authority to enter into this Letter and to perform its obligations hereunder, and that the execution and delivery of this Letter and the consummation of the transactions contemplated hereby have been duly authorized by all necessary corporate or other action.

2.2 Client Name represents that all information provided to Counterparty Name in connection with the preparation of definitive documentation is true, accurate and complete in all material respects as of the Effective Date and that no material adverse change has occurred since the date of such information.

3. CONDITIONS PRECEDENT

The obligations of the parties to proceed to closing are conditional upon: (a) satisfactory completion of due diligence by Counterparty Name; (b) delivery of customary corporate, legal and financial documentation; (c) receipt of any required third-party consents; and (d) execution of mutually acceptable definitive transaction documents that contain customary representations, warranties, covenants, indemnities and closing conditions.

4. CONFIDENTIALITY AND BINDING PROVISIONS

4.1 Confidentiality: The parties agree to keep the existence and terms of this Letter and all information exchanged in connection with the proposed transaction strictly confidential, except as required by law or as necessary to their respective advisors who are informed of and bound to confidentiality obligations.

4.2 Binding and Non-Binding Provisions: Except for this Section 4 (Confidentiality and Binding Provisions), Section 1.6 (Fees and Expenses), Section 6 (Governing Law) and Section 7 (Notices and Expenses), which are intended to be legally binding, the parties acknowledge that the remainder of this Letter is intended only as a statement of current negotiations and is non-binding and subject to the negotiation and execution of definitive documentation.

5. EXPENSES

Each party shall bear its own legal, accounting and other expenses incurred in connection with the negotiation and preparation of definitive documents, provided that Client Name shall reimburse the out-of-pocket expenses of Counterparty Name as set forth in Section 1.6 upon the terms agreed in the definitive documents or as otherwise agreed in writing.

6. GOVERNING LAW

This Letter shall be governed by and construed in accordance with the laws of the state or jurisdiction selected by the parties below, without regard to conflicts of laws principles.

Governing Jurisdiction:

7. NOTICES

All notices, demands or other communications required or permitted to be given under this Letter shall be in writing and shall be delivered to the addresses set forth below (or to such other address as a party may designate by notice pursuant to this Section).

Client Name Notice Address Counterparty Notice Address

8. AMENDMENT; WAIVER; SEVERABILITY

This Letter may be amended or waived only by a written instrument signed by both parties. No failure or delay by any party in exercising any right shall operate as a waiver thereof. If any provision of this Letter is held invalid or unenforceable, such provision shall be severed and the remainder shall continue in full force and effect.

9. ENTIRE AGREEMENT; COUNTERPARTS

This Letter constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior discussions, understandings and agreements. This Letter may be executed in counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument.

10. ACCEPTANCE; EXPIRATION

This Letter will expire and be of no further force or effect unless countersigned by an authorized representative of Counterparty Name on or before , unless otherwise extended in writing.

Additional Terms or Special Conditions

The parties have caused this Letter to be executed by their duly authorized representatives as of the dates set forth below.

Client Name — Printed Name:

By:

Date:

Counterparty — Printed Name:

By:

Date:

What a Legal Principal Term Letter Is

A Legal Principal Term Letter is a formal written notice used to confirm the principal terms of a legal relationship, transaction, or engagement between parties. It typically summarizes core provisions such as parties' names, the principal obligation or deliverable, effective and termination dates, payment or consideration, and any conditions precedent. The letter is often used before drafting a full contract to create a clear record of agreed terms, reduce misunderstanding, and support later contract drafting, negotiation, or enforcement efforts in a commercial or legal context.

Why use a Legal Principal Term Letter

A concise term letter documents agreed essentials early, reducing negotiation friction and preserving a record of intent that can speed contract drafting and help resolve disputes. It clarifies responsibilities, timing, and conditions without substituting for a full executed contract.

Who typically prepares and receives this letter

Parties commonly involved include contracting businesses, in-house counsel, outside attorneys, lenders, and transaction managers who need a written record of core deal terms.

Corporate development teams confirming deal points for counsel and financiers.
Outside counsel formalizing negotiated terms before final agreement drafting.
Lenders or underwriters documenting principal repayment and security terms.

The letter is also used by counterparties to confirm mutual understanding before incurring drafting costs or proceeding to formal signings.

Core sections to include in a professional term letter

A clear structure reduces ambiguity and supports enforceability when the letter is relied upon during later drafting.

Identification

Full legal names and roles of each party, including business entity type and state of formation, to avoid identity disputes during enforcement.

Principal Terms

A concise list of primary obligations, deliverables, financial terms, milestones, and any performance metrics that define the deal's substance.

Effective Timing

Effective date, deadlines for performance, signature deadlines, and any interim milestones that trigger obligations or payments.

Conditions

Conditions precedent or subsequent, approvals required, due diligence items, and any contingency language limiting obligations until satisfied.

Confidentiality

Any non-disclosure or confidentiality obligations tied to negotiating information or a separate NDA reference to protect sensitive terms.

Signatures

Signature blocks for authorized signers, their titles, dates, and any required witness or notary elements to confirm execution.

Essential data fields to include

Parties: Full legal names

Effective Date: MM/DD/YYYY

Term Length: Start and end dates

Consideration: Amount or description

Authority: Signer name and title

Execution Method: eSign or notarized

Step-by-step: completing a Legal Principal Term Letter

Follow these steps to prepare a clear, enforceable term letter that supports later contract drafting and minimizes ambiguity.

01

Draft core terms: List parties, obligations, dates, and payment terms.
02

Add conditions: Identify approvals, contingencies, and due diligence items.
03

Specify execution: Choose eSignature, in-person signing, or notarization.
04

Review authority: Confirm signers have corporate or delegated authority.

How to set up an online completion workflow

Configure the online flow to collect required fields, authentication, and any attachments before sending for signature.

Field	Configuration
Required Fields	Mark names, dates, and signature as mandatory.
Authentication	Use email link, SMS code, or KBA as needed.
Attachments	Allow supporting documents upload before signing.
Audit Trail	Enable IP, timestamp, and history capture.

Typical routing: from draft to executed letter

A reliable routing sequence reduces signature delays and ensures all approvals are captured in order.

Prepare Document: Create the term letter with fillable fields and attachments.
Assign Signers: Add signer emails and set signing order if required.
Authenticate: Require the chosen level of signer verification.
Complete and Store: Collect signatures, capture audit trail, and archive.

Distribution and technical requirements for eSubmission

Choose a platform that supports PDF/DOCX upload, audit trails, and the authentication level your transaction needs.

File formats: PDF, DOCX supported
Integrations: CRM and cloud storage
Authentication: Email, SMS, KBA options

For enterprise workflows, ensure the provider offers SSO, API access, and secure archive features; configure retention and access controls consistent with internal compliance policies.

Key dates and typical response windows

Track critical dates to avoid missed obligations, termination triggers, or missed acceptance windows that can alter parties' rights.

Effective date entry:

Set as MM/DD/YYYY and confirm mutual acceptance.

Signature deadline:

Specify deadline for returning executed letter.

Condition cure period:

State the time allowed to satisfy conditions precedent.

Delivery confirmation:

Record date of electronic delivery and receipt.

Retention start:

Begin record retention when fully executed.

Common mistakes to avoid when preparing the letter

Using informal or ambiguous language that leaves obligations open to multiple interpretations and increases litigation risk.
Failing to confirm the signer's authority, which can render the letter unenforceable against an entity.
Omitting clear conditions precedent or cure periods, causing disputes whether obligations were triggered.
Not capturing an auditable execution trail when using electronic signatures, leading to proof challenges later.

Practical risks and legal consequences

Enforceability risk: Ambiguous terms may be unenforceable

Authority challenge: Signer's lack of authority invalidates commitments

Statute impact: Timing errors affect statute limitations

Tax exposure: Incorrect payment terms trigger withholding

Privacy breach: Improper handling may violate HIPAA

Record loss: Missing audit trail undermines proof

eSignature vendor comparison for executing term letters

Compare starting price, trial availability, bulk send, audit trail, HIPAA compliance, and envelope caps when selecting an eSignature provider for term letters.

	signNow	DocuSign	Adobe Sign	PandaDoc	HelloSign
Starting Price	$8/user/mo	$15/user/mo	$14/user/mo	$19/user/mo	$15/user/mo
Free Trial	7-day free trial	Varies	Varies	Varies	Varies
Bulk Send	Yes	Yes	Yes	Yes	No
Audit Trail	Yes	Yes	Yes	Yes	Yes
HIPAA Compliant	Yes	Yes	Yes	No	No
Envelope Cap	No cap	100 envelopes/user/year	Varies	Varies	Varies

Frequently asked questions about Legal Principal Term Letters

Answers to common execution, validity, and submission questions to help avoid delays and preserve enforceability.

Need help? Contact support

Is a term letter binding?
It can be binding if it satisfies intent, consent, attribution, and retention tests for electronic records; whether it is binding depends on language, signatures, and any disclaimers reserving drafting of a final contract.
Can it be e-signed?
Yes. Electronic signatures are accepted under the ESIGN Act and UETA where applicable, but certain exceptions exist and higher authentication may be advisable for high-value deals.
Do I need a notary or witness?
Not usually for a simple term letter, but state-specific requirements or internal policy may require notarization or witnesses for certain authority confirmations.
What if a signer lacks authority?
A signer without proper authority may render commitments unenforceable; confirm delegation or corporate resolution before accepting signatures.
How should I store executed letters?
Store digitally with an immutable audit trail, retain according to IRS and industry rules, and ensure backup copies are preserved for the retention period.
How do I correct errors after signing?
Execute an agreed amendment or replacement letter signed by all parties; avoid unilateral changes and preserve audit logs of the correction process.

be ready to get more

Join over 28 million airSlate SignNow users

Sign Now