Understanding Consequences
Simple rules may have some big consequences. So, it is up to the attorney to not only understand the rules, but know what impact those rules may have in the long run.
For instance, rules that every contract needs to have is:
- A grantor and grantee (seller and buyer)
- The right to assign rights unless otherwise stated (can’t assign more than you have)
Letters of Intent, Options, and Enforceability
Real estate contracts are conducted by contract. Consequently, contract rules such as the parol evidence rule and the statute of frauds apply to those transactions.
A letter of intent is an expression from a buyer expressing the intent to purchase a property. Typically, in return, the seller will take the property off the market while the buyer contemplates making the purchase. The added benefit of a letter of intent to is take the property off the market while preliminary negotiations are taking place.
Options similarly provide the buyer with the option to purchase for a limited period of time. Buyers typically provide consideration (payment) for an option so the house is removed from the market while the buyer comtemplates the purchase.
Although letters of intent and options have the same result, letters of intent are more risky. If something goes wrong, a court may see a letter of intent as an enforceable contract, causing the buyer to make a purchase (or most likely provide damages) for a property they do not want.
GMH Associates, Inc. v. Prudential Realty Group
752 A.2d 889, appeal denied, 795 A.2d 976 (Pa. Sup. Ct. 2000).
Prudential is the defendant who lost at trial and appealed.
Question
Was there an enforceable valid contract?
Holding
No, the contract was not enforceable. Reversed.
Facts
Prudential was selling property and GMH was an interested potential buyer. They entered into negotiations and established a letter of intent. The letter of intent said that the property was to be removed from the market, the interested selling price was for $109 million “as is”, and that the letter was not to be assumed to be a binding enforceable contract on any party (allowing either party to back out for any reason).
Negotiations were delayed and Prudential began looking for other potential buyers. Eventually they found one while maintaining a conversation with GMH. GMH made a proposal of $107, which was latter framed in a letter of intent. However, Prudential rejected that offer and accepted an offer from another party.
GMH believed that the $107 was an offer from Prudential, and believed they were accepting the offer. As such, they sued.
Analysis
There was no enforceable oral contract. The oral discussions made between Prudential and GMH was not an offer which was later accepted by GMH. Even if it was an offer, the offer was rescinded before it was accepted. Instead, the discussions were made in continued negotiations, Prudential was asking GMH to make an offer.
Because no enforceable contract was made, no fraudulent representations could have been made that caused GMH to enter into a contract. Additionally, estoppel doesn’t work because the original letter of intent said that any party could back out at any time and the property was being sold as is.
Neddermeyer v. Neddermeyer
2010 WL 5394852 (Iowa App.)
Edward Neddermeyer sued, lost, and appealed.
Question
Was the option exercised in time?
Rule
The option is exercised when notice of the intent to exercise is provided.
Holding
The option was exercised in time. Affirmed.
Facts
Helma Neddermeyer had five children and a will. A provision of her will allowed Marion, her son, an option to purchase property if the option was exercised within 6 months of her death. She died January 25, and Marion provided notice of his intent to exercise the option on July 20th. December 20th is when he came up with the money to make the purchase.
Analysis
Exercise occurs when notice is provided, there is nothing in the law that requires the purchase be made within the time provided in the option. As such, he properly exercised the option in time.
Disclaimer
The content contained in this article may contain inaccuracies and is not intended to reflect the opinions, views, beliefs, or practices of any academic professor or publication. Instead, this content is a reflection on the author’s understanding of the law and legal practices.
