Glossary

Letter of Intent (Legal Effect)

The legal doctrine governing whether a signed letter of intent creates a binding obligation on the parties, which turns on the parties' expressed intent, the definiteness of the terms stated, and any explicit non-binding language in the document itself.

Most CRE letters of intent are drafted to be expressly non-binding on the core business terms (price, key economic terms) while carving out a small number of provisions — confidentiality, exclusivity or no-shop periods, and governing law — as separately binding regardless of whether a definitive agreement is ever signed, and courts generally enforce this bifurcated intent when it is clearly expressed. Ambiguity arises when parties negotiate extensively, exchange detailed drafts, and begin performing as though a deal exists (arranging financing, ordering third-party reports) without ever signing a definitive purchase agreement — under these circumstances, courts in some jurisdictions have found an enforceable contract existed despite a document labeled "non-binding," particularly under a promissory estoppel theory if one party reasonably and detrimentally relied on the other's conduct. Because of this risk, sophisticated CRE parties are careful to include explicit language stating that no binding obligation to consummate the transaction arises until a definitive, mutually executed purchase and sale agreement is signed, and to avoid conduct inconsistent with that stated intent during negotiations.