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Formal text that sums up the terms and understanding of a contract
This article is about pre-contractual matters. For an intended common line of action, see memorandum of understanding. For financial obligations, see Letter of credit.
A Letter of Understanding (LOU) is a formal text that sums up the terms of an undertakings of a contract which may have been negotiated up to this point only in spoken form or otherwise informally. It reviews the terms of an agreement for a service, a project or a deal and is often written as a step before a more detailed contract is issued.