The pitfalls associated with Letters of Intent

Outlining the basic terms of a real estate transaction in a letter of intent can help prevent future disagreements between parties — it can also lead to them. When this type of document is incomplete, self-contradicting, or up for interpretation, problems often arise. The most significant is confusion as to whether the letter is binding or non-binding. While one party may see the document as a simple guideline designed to build momentum towards a final deal, the other party may believe the terms in a letter of intent are set in stone.

Most of our clients would like to create a letter of intent that is non-binding and unenforceable, as their circumstances could change before the deal is finalized. It is critical to create a letter of intent that explicitly states this fact in cases like these. Any language that refers to the letter as an “agreement” should be omitted from a letter of intent since a court may interpret this language as a binding agreement. While Minnesota law states that any agreement to enter negotiations in the future is unenforceable, it’s better to be safe than sorry when drafting a letter of intent.

Want to learn more? Attorney At Law Magazine has published an in-depth article explaining the precautions to take when drafting a letter of intent. Please read it here to get information that could prevent legal problems down the line.