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A look at letters of intent and their role in real estate deals

and sale of a property. Each and every transaction is unique and there are often many different terms that must be decided on. Therefore, sometimes before a binding contract is signed by the parties, a tool known as a letter of intent is utilized in order to set forth some of the main ideas such as a purchase price and closing date in writing.

According to the Business Dictionary, a letter of intent confirms that both parties have an interest in moving the deal forward. It can be used to set forth any terms that have been agreed upon, which frees up more time to negotiate all of the other things that will need to go into the final purchase and sale agreement. A letter of intent may also set forth certain actions that either or both parties have agreed to do.

Unlike the final contract however, the terms that are agreed to in the letter of intent may not be binding or may not be enforceable in court. Therefore, the language used in the letter of intent is very important. If the terms that are included are meant to bind the parties in some way, it should expressly state so. Conversely, language can also be included that explicitly states that the terms are not intended to be binding.

However, even if the language of the letter of intent states that it is non-binding, courts do not always agree that that is the case. As LinkedIn points out, if either of the parties attempts to change the terms of the agreement drastically, it could be a violation of any clause invoking the concept of good faith. This means that neither part was trying to take advantage of the other. If a court finds that one of the parties was not acting in good faith, that entity could be found liable.

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