With the overall improvement in the economy and the accelerated pace of real estate transactions, parties are increasingly relying upon letters of intent to hold deals in place while formal contract terms are agreed upon and drafted. Letters of intent have several advantages, allowing parties to quickly agree upon and document the key deal points without negotiating full agreements beforehand. And, with broad deal points agreed upon, it can then be easier to identify the remaining open items and address them in the formal agreements that are prepared following the execution of the letter of intent. Letters of intent frequently permit the parties to begin due diligence, and may contain exclusivity and non-circumvention clauses as well.
But what happens when, instead of finalizing the transaction, the deal falls through, perhaps where one of the parties uses the letter of intent to shop the deal around for better terms? Is the letter of intent an enforceable agreement that would give rise to liability in such a case? This article examines the issue.
