On January 6, 2023, Justice Reed of the New York County Commercial Division issued a decision in SPG Capital Partners LLC v. Cascade 553 LLC, 2023 NY Slip Op. 50016(U), holding that a term sheet was not a binding agreement, explaining:
Defendants initially argue that the term sheet is an agreement to agree and therefore is not binding. They quote the following language in the term sheet: “This Term Sheet is for discussion purposes only and is subject to Lender’s satisfactory completion of its due diligence, internal credit approvals and satisfactory legal review” (NYSCEF doc. no. 66, *1). Further, the term sheet ends by reiterating that the term sheet is subject to the above and that it is not “an offer, agreement, or commitment to lend or borrow”. It adds that “[t]he actual terms and conditions upon which the Lender might extend credit to the Borrower may change and [also] will be subject to . . . such other terms and conditions as determined by Lender in its sole discretion”. According to defendant Brach, defendants “understood from this language that SPG was not agreeing to be bound to Cascade in any way in connection with the Non-Binding Term Sheet [] and was instead merely setting forth indicative terms of a potential loan that SPG might be willing to make to Cascade, subject to the negotiation of definitive loan agreement”. Thus, defendants contend, they are not bound by the term sheet.
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Based on the prevailing standard, the court concludes that the term sheet does not bind the parties. To determine whether the parties to a preliminary agreement calling for the execution of a formal instrument intended to be bound in the absence of such an executed final instrument, a court must consider the following factors: 1) whether there has been an express reservation of the right not to be bound in the absence of a final writing; 2) whether there has been partial performance of the alleged contract; 3) whether all of the terms of the alleged contract have been agreed upon; and 4) whether the agreement at issue is the type of contract that is usually committed to a final writing.
As defendants note, the document repeatedly emphasizes its nonbinding nature. Where, as here, a term sheet is expressly conditioned on the completion of the lender’s due diligence, further satisfactory negotiation by the parties, and the acceptance of the loan documents, the document is not binding. As the Second Department held in dismissing a contract claim in a case with language like that at issue here, the letters of intent, by their own terms, were nonbinding, and that the formation of an enforceable agreement was expressly conditioned, inter alia, on the finalization of a definitive agreement.
Plaintiff’s arguments to the contrary are not persuasive. Its reliance on Bed Bath and Beyond is misplaced, because there the court found that the plain language of the letter of intent manifests the parties’ intent to be bound by its terms. Indeed, in those cases where courts have found letters of intent or term sheets to be binding, courts have relied not only on the specificity of the details in the documents but a similar manifestation of intent.
(Internal quotations and citations omitted).