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Traps for the Unwary: Text Messages, Authorized Agents, and Binding Letters of Intent
Print PDFA recent Land Court decision strongly suggests that sellers should proceed with caution when negotiating real estate transactions via email and text messages. In determining whether a contract was formed between two companies for the purchase and sale of a commercial building located in Danvers, Massachusetts, the Court held that a text message between the respective real estate brokers constituted a sufficient writing under the Statute of Frauds that, under the circumstances, had bound the seller to the letter of intent being negotiated.
In St. John’s Holdings, LLC v. Two Electronics, LLC, the buyer and seller had authorized their respective real estate brokers to act as agents on their behalf with regard to the negotiation of a binding letter of intent. As the negotiations progressed, the letter of intent that circulated between the brokers was consistently described as “binding.” In addition, the seller’s broker sent a text message to the purchaser’s broker detailing the procedure for signing and returning the letter of intent. The issue before the Court was whether the letter of intent, coupled with the broker’s text message, merely represented ongoing negotiations or amounted to an enforceable contract for the purchase and sale of the subject property.
The Land Court found that the text message constituted a “writing” for the purpose of the Statute of Frauds requirement that an agreement be in writing and signed by the party to be charged. The Court noted that, in general, brief and informal writings may be sufficient to satisfy the writing requirement. The Court also acknowledged that the use of electronic communications has become commonplace, especially in the legal field. Other recent decisions also supported the position that an email may constitute a sufficient writing. In this case, the letter of intent, in conjunction with the text message, contained all of the essential terms of a purchase and sale agreement and evidenced the intent of both parties to be bound. These factors weighed in favor of finding a writing and, therefore, a valid contract. Further, the fact that the broker, rather than the seller, “signed” the text message was irrelevant, since both parties had agreed that the brokers were authorized to negotiate on their behalf. The Court also held that, by negotiating electronically, the parties had “opted-into” conducting the transaction using electronic means. Consequently, the electronic signature at the end of the text message demonstrated the seller’s intent to be bound to the purchase and sale transaction and therefore was sufficient.
Several lessons can be drawn from this decision. First, absent unusual circumstances, letters of intent and term sheets should state clearly that they are non-binding and that the parties intend to be bound only by a fully-negotiated final agreement. If possible, the seller should reserve the right to terminate the letter of intent for any reason or for no reason prior to execution of the final agreement. Second, the seller should require that all offers be delivered to him or her by the broker in writing and should reserve the right to accept or to reject any and all offers. The seller should avoid being bound by the acts of its broker by limiting the actions that the broker is authorized to take on his or her behalf. Third, sellers should exercise extreme caution when communicating electronically and should be aware of the possibility that emails, and now text messages, may be sufficient to amount to writings under the Statute of Frauds. While one email or text message may be inadequate on its own, a comprehensive and detailed exchange of such communications may be sufficient to be binding. Therefore, electronic communications by the principals, their brokers, attorneys, and others involved in the negotiation process should clearly express the intent of the parties not to be bound by these preliminary type of documents.
This advisory was prepared by Bob Fishman, partner in the Real Estate and Finance Department and chair of the firm's Land Use, Permitting and Development Practice Group, and others in Nutter's Real Estate and Finance Department. For more information, please contact Bob or your Nutter attorney at 617.439.2000.
This advisory is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.