You may want to use caution in drafting a Letter of Intent because a court may find it binding even if that was not your intent. On January 27, 2015, the Court of Appeals of Maryland entered a finding that a letter of intent could in fact be enforceable if it was inclusive and definite as to all material terms, without requiring the execution of a subsequent agreement.[1] The determination depends on the intent of the parties and the definiteness of the terms. An enforceable letter of intent may exist in those situations where (i) the parties express definite agreement on all necessary terms, and say nothing as to other relevant matters that are not essential and (ii) in those cases where there is an express intention to be bound.[2]

In the Falls Garden case, the parties executed a letter of intent with respect to a 99 year lease of twenty-four parking spaces and settlement of the pending case. When additional issues arose, Falls Homeowners Association, Inc. filed a Motion to Enforce Settlement Agreement to implement the letter of intent. In ruling on the Homeowners’ Association’s motion, the Court found that the letter of intent in question did not specify whether or not the parties intended to be bound. The Court therefore looked at the specifics of the agreement to determine if all material terms had been addressed. The Circuit Court Judge and the Court of Special Appeals both agreed that the letter of intent included all material terms and that they were definite.

On appeal, the Court of Appeals of Maryland found that as to the lease, the letter of intent was inclusive and definite as to all material terms and execution of a subsequent lease agreement was unnecessary, despite the fact that a future agreement was contemplated in the letter of intent. The court found that the letter of intent contained the length of the lease, the number of parking spaces, the location, and the price and also set forth maintenance, tax, insurance, signage and towing rights and obligations. Likewise, the court found that the terms of the settlement portion of the Letter of Intent were definitive and binding.

The Courts hearing this case concluded that the letter of intent was enforceable on its face, as a contract and no subsequent agreement was necessary. Parties to a letter of intent may therefore want to specifically state in the letter of intent the parties’ intention to be bound by the letter of intent or their intent that it be non-binding.

[1] Falls Garden Condominium Association, Inc. v. Falls Homeowners Association, Inc., 441 Md. 290, 107 A.3d 1183 (Md. 2015).

[2] Cochran v. Norkunas, 398 Md. 1, 919 A.2d 700 (2007) citing Corbin on Contracts §2.9, p 158 (Rev. ed. 1993).