“Non-Binding” Letters of Intent for Leases May Hide Traps

  • Published: May 15, 1997
  • By Bardin Levavy

Most prospective tenants who sign “non-binding” letters of intent in lease negotiations expect that they will not be bound by the terms of the letters until those terms are incorporated into a formal lease. Usually, they are right. Occasionally, they are wrong.

The difference between a non-binding letter of intent and an enforceable one can not be drawn with bright lines. While it remains true that the enforceability of a letter of intent is first determined by examining the parties’ intent, to the extent that it can be determined, anomalies do occur. Specifically:

Courts have enforced the terms of a letter of intent which stated that it was subject to the approval of the board of directors of one of the parties, but the approval was never sought.

Statements made at the time of negotiations have been used to overcome explicitly stated non-binding intentions.

● The letter of intent may contain enough material terms to permit a court to find that it is an enforceable contract. In those cases, the court may supply the open terms.

● The parties may have acted in reliance on the letter of intent as if it were enforceable and, by those actions, made it enforceable.

Letters of intent are sophisticated documents. They should be negotiated and prepared only by seasoned attorneys.