Offer: Preliminary Step or Binding Contract?

by Thomas V. Bennett

The usual progression of a buyer of real estate is that a buyer makes an offer on a standard form to a seller containing the essential business terms and, once it is accepted, a purchase and sale agreement which sets forth more fully all of the rights and obligations of the parties is executed within ten or fifteen days thereafter. The closing follows after that generally thirty to ninety days. Sometimes the seller will have a change of heart after the seller has accepted the offer (usually motivated by more money from another offer) and the seller will try to wiggle out of the deal by not entering into the purchase and sale agreement.
 

In 1999 the Supreme Judicial Court of Massachusetts ruled that the intent of the parties controls and that if the parties agreed to all of the essential terms of the transaction in an offer, it reflected the parties' intention to be bound by that agreement and entering into a more formal purchase and sale agreement would not be a requirement for a law suit by the buyer to enforce that contract.
 

A recent Massachusetts Appeals Court decision may as a practical matter limit that right of a buyer to a single-family home or other relatively simple real estate transaction not involving permits, sophisticated financing and the like.
 

A recent case involved an offer that was contingent upon obtaining a curb cut, financingand the like in order to develop a parcel of real estate. Somewhere between the offer and the purchase and sale agreement the parties could not reach agreement and the seller entered into an agreement with a different party to sell the property. The first buyer brought suit to enforce the offer.
 

The court in analyzing the facts decided that it was not the intent of the parties to be bound by the offer because the buyer indicated the reason he had not proceeded to obtain the curb cut, financing and the like was because it would “cost thousands of dollars” and the buyer did not want to proceed until he knew he had a valid contract. The court found that because he failed to proceed so that he would be ready to close by the date required by the offer, he had demonstrated that it was not the intent of the parties to be bound by the offer since the buyer's conduct demonstrated that only a signed purchase and sale agreement would fill that role.
 

So, in any kind of a commercial transaction where the obligations of the buyer would be contingent upon obtaining zoning permits or financing or other costly items such as appraisals, engineering, lawyer's fees and the like, a buyer who seeks to enforce an offer will be forced to bear those expenses if the buyer wants a court to decide that it was the intention of the parties that the offer be controlling and run the risk of eating those costs if the buyer loses the law suit which may make it untenable for the buyer to pursue seeking to enforce the offer.