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Be Careful – A Letter of Intent Could be Binding

The Floyd Law Firm PC > Legal Sen$e > Be Careful – A Letter of Intent Could be Binding
Legal Sen$e - The Floyd Law Firm PC
By Patricia H. Anderson

Business people who have agreed on the general terms of a deal often sign a “letter of intent” that lays out these terms in writing. The idea is to make sure that everyone is on the same page while a formal contract is being drafted. But what happens if you sign a letter of intent with someone, and then they walk away from the deal? Is that okay?

In general, the answer is yes – a letter of intent isn’t a binding contract; it’s merely an expression of a plan to negotiate a binding contract. But that’s not always true. Sometimes a letter of intent is so specific and leaves so little out that it can be legally considered a contract in itself.

For instance, in one case involving a real estate sale, the buyer and seller signed a letter of intent that included a description of the property, sales price, the deposit and title requirements, and the time and place of closing. It said the buyer’s offer was accepted, and the two sides “shall” sign a sales contract that was satisfactory to both.

Before signing the sales contract, though, the seller changed her mind and agreed to sell the property to someone else. The buyer sued, and the Massachusetts Supreme court sided with him. It said that while the letter of intent wasn’t a formal contract, it was so specific and clear that it amounted to a binding agreement.

If you’re signing a letter of intent, be very careful if it’s important to you to (1) preserve your right to back out or (2) make it as difficult as possible for the other side to back out. Some letters of intent solve this problem with a “withdrawal fee.” That is, they say that the letter isn’t a binding contract, but if one side doesn’t sign a binding contract on the stated terms by a certain date, he or she must pay the penalty.

Your Attorney at The Floyd Law Firm, PC, will effectively guide you through all of the legal services prior to, or during, the letter of intent process to the negotiation of a contract. It is our job to know everything that the law requires, and to make sure everything is in proper order so that you can make an educated decision about the deal that you are agreeing to.

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