When is a Letter of Intent Enforceable in a Real Estate Transaction?

What is a letter of intent?

A letter of intent, often alternately called a memorandum of understanding, is a writing setting forth the mutual understandings of two parties prior to drafting and executing a contract. Often, clients will negotiate a letter of intent with the key terms of a real estate transaction to submit to their lawyers to serve as a guide in drafting a more formalized, detailed purchase agreement. In complex transactions, those more detailed purchase agreements may go back and forth between buyers and sellers and their respective lawyers, undergoing a series of revisions before a final purchase agreement is executed.

What needs to appear in a writing commemorating a real estate contract?

An oral agreement to transfer real property interests is typically unenforceable. The Florida Supreme Court has held that a writing commemorating an agreement must “satisfactorily show that a contract has actually been made.” A writing by one or both parties contemplating or discussing a future sale made while the terms of the sale are yet to be decided upon will not itself suffice. A writing in a real property transaction must contain “all essential terms of the sale.” Therefore, a writing will not be enforceable unless it evidences that an agreement has already been made, and sets forth the essential terms of such agreement, such as the property being sold, the price, and the identities of the buyer and seller.

Can a letter of intent be enforceable?

In instances where a more formal, detailed agreement isn’t executed, a party may wonder if they can still seek enforcement of the transaction based on the terms set forth in a written letter of intent. The threshold question of whether a letter of intent is enforceable is whether the parties intended for it to be legally binding upon them: if indications of intent for a writing to be binding are “absent or are explicitly disavowed” in the writing, the writing will not be treated as an enforceable contract. A letter of intent which merely sets forth an agreement to agree in the future, or which explicitly disclaims any legally binding effect, will not be enforceable.

A mere reference to a future agreement to be prepared will not render a letter of intent unenforceable, however. If the parties intend to be legally bound upon making the letter of intent, it can still be enforceable even if the letter states that an agreement is still to be drafted. Provided that the letter of intent sets forth the intent of the parties to be bound and meets the criteria necessary to commemorate an enforceable real estate contract (the letter must be signed by the party against whom enforcement is sought, must set forth the essential terms of the transaction, and must refer to a present agreement between the parties, not an “agreement to agree” in the future), a letter of intent may be enforceable.

Parties negotiating a letter of intent may also specify individual provisions of the letter of intent they wish to be enforceable, even if they do not wish to be bound by the rest of the letter. For instance, typical letters of intent may contain provisions requiring a period of exclusive dealing or confidentiality while negotiations for a final form of purchase agreement are ongoing. If parties demonstrate their intent to be bound by only those provisions of the letter of intent, then those provisions may be enforceable, obligating the parties to engage in confidential, exclusive negotiations, even if there is no enforceable obligation to go through with the real estate transaction being negotiated.  

If you are in the business of buying, selling, or leasing property, knowing exactly what level of commitment you are making with a letter of intent is essential. Attorneys at Shuffield, Lowman, & Wilson, P.A. have expertise in carefully drafting forms of letter of intent so that our clients can tailor their preliminary agreements with the assurance that they are bound to the extent they choose to be. For advice or assistance in drafting preliminary documents for real estate transactions, please contact attorney Connor Nugent at cnugent@shuffieldlowman.com, or reach out to one of our other real estate attorneys.