The enforceability of letters of intent

Por Angelo Gamba Prata de Carvalho,
Monitor da Turma de Contratos da UnB

A letter of intent or memorandum of understanding is a document drafted with the purpose of establishing the common terms of an agreement negotiation between the future contracting parties. The document refers to a future, possible, binding agreement, but it is drafted in a preliminary phase of the negotiations.

The content of a letter of intent is not, in a general way, binding between the parties, although some clauses may generate obligations as, for example, the non-disclosure of the debated terms. For this reason, letters of intent cannot be judicially enforced as a preliminary contract could.

However, a recent decision from the Court of Appeals of Maryland (Falls Garden Condominium Ass’n Inc. vs. Falls Homeowners Ass’n, Inc)  stated that a letter of intent settled between a condominium association and a homeowners association was an enforceable contract to which the parties intended to be bound. The parties were in a dispute over the use of parking spot spaces and, while the question was already in the courts, the subjects signed a letter of intent describing the terms for a future leasing agreement for the parking spots.

The court’s decision held that the language of the agreement was sufficiently unambiguous to establish all the leasing agreement’s material terms (such as the length of the leased area, the number of spots, specific terms on the price and on liability, etc.), which were definite. The final decision stated that, in this case, a reasonable observer would conclude the parties intended to be bound. For this reason, that letter of intent could be enforced.

The whole decision can be read here: http://www.lexisnexis.com/lnacui2api/results/docview/docview.do?docLinkInd=true&risb=21_T22611868774&format=GNBFI&sort=BOOLEAN&startDocNo=1&resultsUrlKey=29_T22611868780&cisb=22_T22611868779&treeMax=true&treeWidth=0&csi=7704&docNo=1