Letters + Proposed Agreement ≠ Lease

August 31, 2004

An owner asked a friend if he wanted to open a bank on the owner's property. The friend said yes, so he and the owner began negotiating the lease in a series of letters. All of the friend's letters said that nothing in them obligated the friend to sign a lease and that a signed written lease would be needed. The owner and his friend met to discuss a proposed lease agreement. After the meeting, they shook hands, and the friend said, “We have an agreement.” But a lease was never signed, and the friend later told the owner that he'd decided not to lease the property.

An owner asked a friend if he wanted to open a bank on the owner's property. The friend said yes, so he and the owner began negotiating the lease in a series of letters. All of the friend's letters said that nothing in them obligated the friend to sign a lease and that a signed written lease would be needed. The owner and his friend met to discuss a proposed lease agreement. After the meeting, they shook hands, and the friend said, “We have an agreement.” But a lease was never signed, and the friend later told the owner that he'd decided not to lease the property. The owner sued the friend for violating the lease. The owner claimed that the letters and the proposed lease agreement constituted a lease.

A North Carolina appeals court ruled that the letters plus the proposed lease agreement didn't equal a lease. Several documents can constitute a valid written lease, the court said, but only if the documents indicate the parties' intent to be bound by them. Here, the friend's letters clearly disavowed such an intent, the court said. And the fact that the lease agreement discussed was labeled “proposed” also refutes the owner's argument that the friend intended to be bound by its terms, the court added [Howlett v. CSB, LLC].

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