Letters of Intent: Lifesavers or Landmines?
By Michael J. Hamblin
Most real estate deals are started with a letter of intent. Many times, the parties to these deals do not appreciate the role of a letter of intent and how it affects the ultimate completion of the deal. Properly drafted letters of intent provide an important opportunity to prevent legal problems. However, if not properly negotiated or followed, a letter of intent can be a proverbial landmine.
The purpose of a letter of intent is to provide an initial outline of the parties’ expectations and obligations, which will be memorialized later in the formal agreements and contracts that the parties’ sign to document their final agreement. Letters of intent are frequently prepared and used when negotiations are just beginning not only to document the basic terms of the real estate deal, but also, hopefully, to simplify further negotiations.
Many people assume that letters of intent are merely expressions of what the parties hope to accomplish and are not really binding should one of the parties decide that they no longer wish to proceed in the manner outlined in the letter of intent. Proceeding on that basis can be very dangerous, because, if properly drafted, letters of intent can meet the requirements for qualifying as a binding contract. Even the terms of so called non-binding letters of intent can be binding if the parties proceed far enough along in the deal.
Because of these issues, it's important to have a competent attorney involved in the preparation or, at the very least, the review of a letter of intent before it is signed. A carelessly drawn letter of intent can destroy a party’s bargaining position in later negotiations and even lead to damaging lawsuits.
After negotiations have been completed, it is important to carefully prepare and review contract documents to confirm that they reflect the deal. It is also important that the contract documents cover contingencies that may not have been discussed during the negotiations. At a minimum the contract should contain "preventive'' provisions like remedies for default, procedures for handling disputes, provisions limiting your liability, and any appropriate indemnification provisions.
Anyone getting ready to sign a letter of intent should consult with a trusted legal advisor before doing so. They should be able to help you maximize the benefits that letters of intent can offer, protect your bargaining position, and help you avoid any trouble that might crop up due to a poorly written letter of intent.
Michael J. Hamblin is an attorney at Frank Haron Weiner, and focuses his practice on a wide range of litigation and transactional business law matters.
Most real estate deals are started with a letter of intent. Many times, the parties to these deals do not appreciate the role of a letter of intent and how it affects the ultimate completion of the deal. Properly drafted letters of intent provide an important opportunity to prevent legal problems. However, if not properly negotiated or followed, a letter of intent can be a proverbial landmine.
The purpose of a letter of intent is to provide an initial outline of the parties’ expectations and obligations, which will be memorialized later in the formal agreements and contracts that the parties’ sign to document their final agreement. Letters of intent are frequently prepared and used when negotiations are just beginning not only to document the basic terms of the real estate deal, but also, hopefully, to simplify further negotiations.
Many people assume that letters of intent are merely expressions of what the parties hope to accomplish and are not really binding should one of the parties decide that they no longer wish to proceed in the manner outlined in the letter of intent. Proceeding on that basis can be very dangerous, because, if properly drafted, letters of intent can meet the requirements for qualifying as a binding contract. Even the terms of so called non-binding letters of intent can be binding if the parties proceed far enough along in the deal.
Because of these issues, it's important to have a competent attorney involved in the preparation or, at the very least, the review of a letter of intent before it is signed. A carelessly drawn letter of intent can destroy a party’s bargaining position in later negotiations and even lead to damaging lawsuits.
After negotiations have been completed, it is important to carefully prepare and review contract documents to confirm that they reflect the deal. It is also important that the contract documents cover contingencies that may not have been discussed during the negotiations. At a minimum the contract should contain "preventive'' provisions like remedies for default, procedures for handling disputes, provisions limiting your liability, and any appropriate indemnification provisions.
Anyone getting ready to sign a letter of intent should consult with a trusted legal advisor before doing so. They should be able to help you maximize the benefits that letters of intent can offer, protect your bargaining position, and help you avoid any trouble that might crop up due to a poorly written letter of intent.
Michael J. Hamblin is an attorney at Frank Haron Weiner, and focuses his practice on a wide range of litigation and transactional business law matters.