## Facts

- A shopping mall owner/developer and related entities sought an anchor tenant to strengthen a planned mall acquisition and financing.
- A retailer expressed interest in leasing space at the mall; negotiations proceeded through the owner’s leasing agent.
- The retailer delivered a detailed, signed letter of intent stating major lease terms and providing that the owner would (1) withdraw the premises from the rental market and (2) negotiate exclusively with the retailer toward a final lease.
- The owner signed the letter and used it to support financing efforts for the mall transaction.
- After the letter was executed, the retailer incurred significant costs and undertook substantial work toward completing the transaction, including lease drafting and planning for buildout and operations.
- During the negotiation period, the owner began showing the premises to a competing retailer, terminated negotiations with the original retailer, and leased the space to the competitor.
- The retailer sued for breach, seeking specific performance or damages; the district court ruled the letter of intent was not an enforceable contract and entered judgment for the owner.

## Issues

1. Whether a detailed, signed letter of intent can create an enforceable agreement to negotiate a lease in good faith and to withdraw premises from the market for a reasonable time under Pennsylvania law.
2. Whether mutual promises and the owner’s financing benefit can supply consideration for a preliminary agreement to negotiate in good faith and deal exclusively.
3. Whether the obligations in such a letter are sufficiently definite, and whether the Statute of Frauds bars enforcement when the claim concerns pre-lease duties rather than a completed lease.

## Decision

- The court of appeals reversed the district court and remanded for trial.
- It held there was sufficient evidence for a fact-finder to conclude the parties intended to be bound by a preliminary agreement requiring good-faith negotiations and temporary market withdrawal.
- It rejected the district court’s view that the letter lacked consideration, concluding the letter could confer substantial value on the owner (including financing utility) in exchange for exclusivity and good-faith negotiation commitments.
- It ruled the claim was not limited to enforcement of an unexecuted lease; the asserted contract was a separate, enforceable agreement about the negotiation process and exclusivity for a reasonable time.
- It concluded the Statute of Frauds did not require dismissal at this stage because the signed writing and circumstances could support enforcement of the negotiation/exclusivity agreement even though the final lease was not completed.

## Legal Principles

- A preliminary agreement may be enforceable when the parties objectively manifest intent to be bound to negotiate in good faith, even if they have not yet formed the final contract.
- Mutual promises can constitute consideration for a binding agreement to negotiate in good faith and to refrain from marketing the property to others for a reasonable period.
- A duty to negotiate in good faith can be sufficiently definite to enforce, particularly where a writing expressly provides for exclusivity and continued negotiations.
- Statute of Frauds analysis turns on the contract being enforced; an agreement governing negotiations and exclusivity is analytically distinct from a completed leasehold interest.
- Whether a party breached a duty to negotiate in good faith, and what constitutes a “reasonable time” for exclusivity, are commonly fact questions unsuitable for resolution as a matter of law on an undeveloped record.

## Conclusion

The court held that a detailed, signed letter of intent could bind a property owner to negotiate a lease in good faith and keep premises off the market for a reasonable time where the record supported intent to be bound and consideration, and it remanded for fact-finding on breach and remedies.


Channel Home Ctrs., Div. of Grace Retail Corp. v. Grossman, 795 F.2d 291 (3d Cir. 1986)