Don’t Get Trapped When You Issue A Letter of Intent
We have had two recent cases in which letters of intent arguably crossed the line to become commitment letters without all the protections that would normally be in a commitment letter. LOI language like “the bank is not obligated to make a loan unless . . .” make lawyers shudder. That language should never appear in an LOI. You never want an LOI to even suggest that the bank is obligated to make a loan. Even if the LOI later says that it is not binding and is not a commitment to lend, you do not want to litigate with a borrower who relied on the letter of intent as a commitment. A court may well side with the borrower and force the bank to either make a loan or pay damages for failing to make it.