Letters of Intent in Florida Real Estate Transactions: Are They Worth the Paper They’re Printed On?
“The road to hell is paved with good intentions,” the saying goes. So, too, is the highway that leads to many failed real estate transactions. Buyers and sellers may agree in principle to the broad outlines – or even many details – of a transaction, and often reflect that agreement in a document called a “letter of intent.” But if things go south, and one party wants out of the deal, can the other party enforce such a document?
Letters of intent are strange legal animals. They are not exactly contracts, but can be treated as enforceable agreements if the parties intended to be bound by them and the letter of intent contains the essential terms of the agreement. Other times, a letter of intent will be viewed as simply an “agreement to agree” in the future rather than a legally binding and enforceable contract.
Intent to Be Bound
The key factor in determining whether a letter of intent can be enforced like a contract is determining the intent of the letter. Unless both parties clearly intended to create binding legal obligations through executing the letter, it will not be considered an enforceable agreement. A court will determine whether the parties intended the letter to be a binding contract by looking at the language of the letter, as well as the circumstances surrounding the negotiation, preparation, and execution of the letter.
That is why parties entering into a letter of intent should clearly spell out in the language of the letter whether they intend for the document to create enforceable obligations. By using clear and concise language that specifically states whether the letter is to be treated as a contract or merely an “agreement to agree,” the parties can spare themselves the time, expense, and risk of having a judge make that decision.
Even if the parties expressly intend for their letter of intent to be binding and enforceable, a Florida court will not enforce any such letter unless it contains the essential terms of the deal. After all, it is hard to enforce obligations when those obligations have not been identified.
If essential terms remain open for consideration and negotiation, the letter will not be treated as an enforceable contract under Florida law. In other words, the parties much express a “meeting of the minds” on all essential terms of the agreement.
For real estate transactions, essential terms include items such as:
- Purchase price
- Amount of earnest money
- Payment of closing costs
- Time period to complete property inspection
- Closing date or conditions for closing
If you are considering buying or selling real estate in Florida, a letter of intent can be a useful tool during negotiations. But if not carefully and specifically drafted to reflect the mutual intentions of both parties, it may not accomplish either party’s goals.
The Pensacola real estate contract lawyers at McDonald Fleming Moorhead have extensive experience with all aspects of Florida real estate transactions, including the preparation and enforcement of letters of intent. To discuss your issues and concerns, please call our Downtown Pensacola office at (850) 477-0660 or tell us about your needs online.