Law
Offices of Ronald D. Jackson
Reaching Dreams™
About the Author
Ronald D. Jackson is an
attorney
licensed in Oregon and Pennsylvania (USA). He holds both a Law
and Masters degree in city planning from the University of
Pennsylvania.
His Portland-based practice emphasizes business law, intellectual
property, and real estate law.
Contact Info
Postal address
1001 S.W. Fifth Avenue, #1106, Portland, Oregon 97204 (USA)
Telephone
503-608-7657
Skype™ call
Contact Form
Related Resources
Logan v. D.W. Sivers Co., 207 Or App 231, 141 P3d 589 (2006) . Read the the Oregon Court of Appeals' official opinion that says a letter of intent may be an enforceable contract under certain circumstances.
The case involves the enforceability of a "nonshop" provision contained in a letter of intent to enter into a final purchase and sale agreement for real property. In the "nonshop" provision, defendant, the seller, promised not to solicit other offers or contract to sell the property to a third party for a period of 60 days. The property at issue was a shopping mall that plaintiff intended to buy as part of a section 1031 exchange to avoid tax liability from her previous sale of a different property. Twenty-one days after the parties executed the letter of intent, defendant entered into a sale agreement with a third party. The court held the defendant liable.
Like-Kind Exchanges - Real Estate Tax Tips from the U.S. Internal Revenue Service. Read about the applicable Internal Revenue Code (IRC), Treasury Regulations, court cases, and other official tax guidance related to 1031 Exchanges.
Real Estate
Is a Letter of Intent Enforceable?
It depends on the fine print and of course, the intentions.
A good thing about a letter of intent is that it can save you a lot of time and money. This is due to the fact that by signing a letter of intent you know early in the process whether you and the other side agree on the major terms of a deal. It is a costly mistake to prepare a detailed contract only to discover later that the seller will not accept your offering price or key terms. However, the bad thing about a letter of intent is that if you are not careful, you could end up legally binding yourself, albeit unintentionally, to a deal that you might later regret.
A letter of intent is general in scope. It is the contract, which is negotiated and drafted later, that spells out the details. And as the saying goes: The devil is in the details. Until you have a contract, you want as much flexibility as you can demand. You want the option to walk away from a deal if negotiations go badly. Hence, the contract or purchase agreement should be the only document that legally binds you. Do not fall in the trap by getting bound by a letter of intent. Carelessly signing a letter of intent can cause great harm. Doing so could lead to unintentional and perhaps very bad consequences.
Before you sign on the dotted line of a letter of intent:
Look for a disclaimer. Check to see that the letter of intent contains a disclaimer, which clearly indicates that the parties do not intend to be bound by its terms.
Make it clear that only the contract will bind. Make sure the letter of intent provides that only the written contract or purchase agreement to be negotiated and drafted later will bind the parties.
Take care regarding any nonsolicitation provisions. Be very careful if the letter of intent contains a nonsolicitation or "nonshop" provision, a common clause that prohibits you and/or the other side from seeking or entering into a letter of intent or purchase agreement with a third party usually within a specified time period. Make sure the intent of any nonsolicitation provision is clear, and that you uphold your end of the bargain.
Take care regarding any due diligence provisions. Be very careful if the letter of intent contains a due diligence provision, a common clause that gives one side or both the right to receive and review certain documents about a proposed deal within a specified time period. Make sure the intent of the parties regarding any review provision is clear.
Get legal help. Don't treat a letter of intent lightly. The best time a lawyer can help you is before mistakes are made. A so-called "nonbinding" letter of intent can be tricky, because it may not legally mean what most people believe. The fact that both parties say it is "nonbinding" may not be legally relevant at all. Whether a letter of intent is an enforceable contract depends on the fine print and the situation. Where parties intend to be bound by certain provisions of a letter of intent such as nonsolicitation and due diligence provisions, the Oregon Court of Appeals has ruled that an enforceable agreement will exist. The appeals court held that the letter of intent was an enforceable contract, which obligated the parties to act and negotiate the remaining terms of a contract or purchase agreement in good faith.
The lesson is clear: Under Oregon law, a letter of intent will be an enforceable contract in certain situations. So the next time you're asked "to put your John Hancock" on a letter of intent, be sure you fully understand what it means.