Do you Negotiate over Texts? If you do – Watch Out!

The speed of business is faster than ever and the constant need to be connected weighs down school children, stay at home parents and business leaders alike.  One way to cope is to communicate with any and all means available to make life easier – and we are growing to expect this.

But the question needs to be asked – as a real estate professional, are we treating each communication as an official business response that is being done in writing?  Should we be?  In a recent court case, St. John’s Holdings, LLC v. Two Electronics, LLC, we may find the beginning of our answer.

This case, argued in front of the Massachusetts Land Court, revolves around real estate negotiations taking place over texts.  Two brokers were communicating over a commercial property to be purchased.  A letter of intent (LOI) had previously been drafted, points negotiated in person and then parties left for the day.  Over the course of the following days, the two brokers texted various changes to the contract, including sales price, due diligence period, earnest money and closing date.  The seller’s agent texted that the seller wanted the LOI signed by the buyer to close the deal.  The buyer’s agent amended the LOI to the terms agreed upon in the text messages, had the buyers sign it and texted back that the LOI was signed.

The sellers, however never signed the LOI and instead sold to another party who was also interested in the building.  The buyer sued, arguing that they two parties had an agreement – and had the texts to prove it!

The court determined that the texts constituted a legally binding contract – and were not merely part of the negotiations.  The court went on to explain that the texts contained all the elements of a contract – the subject of the agreement, showed that they made a contract, states the essential terms of the contract and bears some form of signature.  In this case, each text was “signed” with the agent’s name.  Finally, the court determined that the texts made it clear that the LOI was simply to memorialize the agreement reached.

The court’s decision came as a shock to many and will have implications not only in Massachusetts, but across the country.   The ruling should ultimately change the way agents look at texts, emails and other forms of electronic communication.  It may even be beneficial to include a disclaimer in electronic communication stating that absent a signed contract, the following email/text/tweet/chat/etc. is not a binding contract.  It is also important to manage client expectations if the an agreement or sales price has only been agreed to over texts and not in the contract.

Regardless of the means, lawsuits over contract negotiations are nothing new.  It is important to have Realtor’s professional liability insurance in place to cover a firm against such allegations.  Absent the insurance, a firm or an agent could be paying out of pocket for huge settlements and defense costs.  If you want to discuss getting insurance on your firm or want a second review of your current program, please contact us today.