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Recent Superior Court Decisions Raise Red Flags for Real Estate Transactions in Massachusetts

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In May 2012, the Superior Court Department of the Trial Court issued two rulings with significant implications for creating enforceable agreements concerning real estate in Massachusetts. First, on May 14, 2012, Judge Peter Lauriat, sitting in the Business Litigation Session of Suffolk Superior Court, held that a letter of intent (“LOI”) that contemplated entering into a more definitive Joint Venture Agreement for development of property but did not contain all material terms of the joint venture was not enforceable based on the parties’ conduct, and further that the parties’ express agreement to negotiate such terms in good faith was not legally binding. 485 Lafayette Street Acquisition, LLC v. Glover Estates, LLC, C.A. No. 10-2350-BLS1. Then, on May 22, 2012, Judge Douglas Wilkins, sitting in Middlesex Superior Court, held that emails exchanged in negotiating the purchase and sale of real property may have created an enforceable agreement without any manually signed offer or P&S. Rogers v. Coxall, C.A. No. 12-1649-A, (Order on Emergency Motion).

Judge Lauriat’s decision in 485 Lafayette Street is important for developers who work jointly with others to develop properties. In 485 Lafayette Street, the LOI between the plaintiff developer and defendant property owner, stated the parties’ intent “to enter into a Joint Venture Agreement” and outlined “the general terms under which [the developer] agrees to pursue a Joint Venture Agreement for the development of the property with [the owner].” The LOI did not state the respective shares of the contemplated venture, did not identify any purchase price, and contemplated that the parties might never reach a mutually agreeable Joint Venture Agreement by including a right for each party to terminate the LOI upon 45 days notice. The parties proceeded with development efforts but never reached agreement on a Joint Venture Agreement contemplated by the LOI.

In 2009, the developer sought specific performance of the LOI arguing that it was enforceable against the owner and required that the property be conveyed in certain condition. The LOI required the owner to deliver the property in that condition, but “to the Joint Venture.” Plaintiffs contended that a joint venture existed by virtue of the “the parties’ intentions, oral agreements and conduct.” The Court disagreed and held that the owner “could not have been obligated to deliver the Parcel, regardless of its condition, to a Joint Venture that did not exist.” Separately, the developer argued that the owner breached the terms of the LOI by not negotiating a Joint Venture Agreement. The LOI stated that the parties would “proceed to negotiate in good faith a definitive Joint Venture Agreement.” Again, the Court determined that the owner was not liable for any breach. An agreement to negotiate in good faith is merely a statement of present intent and is not enforceable as a contract.

The lessons from the decision in 485 Lafayette Street are twofold. An LOI to develop property as part of a joint venture will not be enforceable as a Joint Venture Agreement based on the parties’ conduct where the LOI expressly contemplates negotiation of a more definitive Joint Venture Agreement and does not contain all material terms. And express provision that the parties intend to “proceed to negotiate in good faith a definitive Joint Venture Agreement,” without more, is not legally binding regardless of how the parties conducted themselves to proceed with the work. If your LOI provides for further negotiation of material terms of the relationship, work should not proceed until those terms are agreed in final form.

Judge Wilkins’ decision in Rogers is similarly important for parties to real estate transactions because it demonstrates the court’s willingness to accept the changing landscape of negotiations by electronic media. In Rogers, jilted buyers sought specific performance of an agreement to purchase two unimproved parcels of land. They had no manually signed offer or P&S. Nonetheless, they claimed that they had a binding agreement with the seller in the form of a series of emails exchanged between their counsel and the seller and his counsel. Specifically, the buyers’ attorney sent an email on April 19 suggesting that the attorneys work to have the offer finalized and signed by the end of the following day. The email had a “revised offer” attached, that included a purchase price, a closing date, and described the property. On April 20, the seller responded with an email that contained some initial information and “concluded that: ‘[w]e must have a written approval letter from the bank today by 5pm and I think we are ready to go (I assume they will provide a closing date with the approval). We are almost there.’” Both emails included standard email (electronic) signature blocks showing the author, followed by street address and phone numbers. And finally, on April 20, following receipt of the seller’s email, the buyers’ attorney provided a copy of a commitment letter from the bank.

The defendant seller moved to dismiss the action by special motion, prompting the court to decide “whether an email exchange can satisfy the statute of frauds.” Under the statute of frauds, an agreement concerning land was not enforceable unless the terms were set forth “in writing and signed by the party to be charged therewith or by some person thereunto by him lawfully authorized.”1 Traditionally, this meant that enforceable agreements require a manually executed document (offer or P&S) containing all material terms. With the advent of electronic communication, it appears times may have changed. According to Judge Wilkins, given the parties’ emails and conduct, the statute of frauds was not so strong a defense as to render the buyers’ claim frivolous. He acknowledged that courts have yet to “set forth rules of the road for the ‘intersection between the seventeenth-century statute of frauds and twenty-first century electronic mail.’”2 Still, the decision to ring in a new era in terms of what courts will evaluate in considering whether an agreement reached by electronic means is enforceable.

While this transaction was about as plain vanilla as they come and the decision itself is preliminary in nature, the message is important and cautionary: the statute of frauds is not an absolute bar to creation of an enforceable agreement absent manually signed terms. To avoid risk, emails should always include a statement that the negotiations are incomplete and that the agreement is not enforceable until the parties have manually signed a record of the written terms.

1 The statute of frauds, G.L. c. 259, § 1, provides in relevant part that: “No action shall be brought:…Fourth, Upon a contract for the sale of lands…or of any interest in or concerning them…Unless the promise, contract or agreement upon which such action is brought, or some memorandum of note thereof, is in writing and signed by the party to be charged therewith or by some person thereunto by him lawfully authorized.”

2 He also noted however, that progress has begun through promulgation of the Uniform Electronic Transactions Act, G.L. c. 110G, which applies where parties have agreed – “as determine from the context and surrounding circumstances, including the parties’ conduct” – to “conduct transactions by electronic means.” G.L. c. 110G, § 5.

This advisory was prepared by the Real Estate/Land Use and Environmental Litigation practice group at Nutter McClennen & Fish LLP. For more information, please contact your Nutter attorney at 617.439.2000.

This update 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.

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