Real Estate Terminology

A letter, note or memorandum setting out a clear intention to take a certain course of action or to enter into a formal agreement. In particular, a letter or other form of writing confirming an intention to enter into a bargain, without intending to create any legally binding contract (Empro Manufacturing Co., Inc. v. Ball–Co. Mfg., Inc., 870 F.2d 423 (1989); McBrien v. Master Development, Inc., 840 F Supp 362 (ED Pa 1994)). After a letter of intent is submitted in acceptable terms, both parties usually negotiate in good faith upon the details of the final contract and carry out any requisite due diligence. In order to ensure that the LOI does not create a binding contract, the sender should make that ‘intent’ known and preferably have the recipient acknowledge that fact. Nonetheless, due to the uncertain legal effect of many letters of intent, they have been described as "an invention of the devil" Quake Construction, Inc. v. American Airline, Inc., 141 Ill.2d 281, 565 NE.2d 990, 1009 (1990) (1 Corbin on Contracts, (1960), § 1.16 n.1).

See also conditional contract, ‘subject to contract’, tender.

Terms in bold are defined elsewhere in the hard copy of the Encyclopedia