Memorandums of Understanding (MOU) in Real Estate

Real estate transactions can encompass millions of dollars and involve multiple stakeholders, making clarity and structure crucial for success. A Memorandum of Understanding (MOU) serves as a powerful tool to set the stage for transactions, development projects, and strategic partnerships. But using an MOU improperly can lead to confusion, disputes, and even litigation if not used or drafted properly.

Land owners, developers, brokers, investors, bankers, attorneys – anyone involved in a real estate deal – can use MOUs to their advantage.

What is a Memorandum of Understanding (MOU)?

A Memorandum of Understanding (MOU) is a written document between two or more parties that outlines the terms and details of a mutual understanding or intent. It is often used in the early stages of negotiation before a long-form legally binding contract is created, negotiated, or executed.

While an MOU is typically not enforceable in the same way a contract would be, it signals that all parties are serious and outlines the responsibilities and expectations moving forward. Be warned: an MOU can have legally enforceable terms if drafted to that effect.

How is a MOU used in a real estate deal?

In real estate, MOUs are often used to set parameters for joint ventures, outline roles in development projects, define the parties intent to transact using certain methods or figures, summarize broker-client arrangements, clarify investor participation and rights, or facilitate public-private partnerships (PPPs).

For example, in a commercial development project, an MOU might be signed between a property owner and a developer to agree in principle on how a parcel of land will be used and redeveloped, pending final approvals, financing, and further negotiation of key terms.

Or, in joint ventures, MOUs are especially useful in early-stage development where partners are still assessing feasibility, clarifying capital contribution or management roles, setting project milestones, or discussing exit strategies.

Common Issues with MOUs

Despite their flexibility and potential helpfulness, MOUs can create more problems than they solve if not carefully crafted. Some of the most common mistakes include ambiguous intentions, over-reliance on the MOU instead of contract terms, failure to include key terms, using templates without careful legal review, and creating binding clauses unintentionally.

Binding vs. Non-Binding MOU: Is my MOU legally binding?

The legal enforceability of an MOU depends on its wording and context. Attorneys and courts will look at the language used, past conduct of the parties, the level of detail in the document, and the intent that the parties expressed within the text.

One specific term we often look for is the word “shall”, which is a clear indicator that one party is obligated to do something specific in the language of the document.

Best Practices for Using MOUs in Real Estate Deals

To ensure your MOU adds value rather than risk, consider following these steps:

1. Work with an experienced real estate attorney
2. Use clear and plain language
3. Specify which sections (if any) are binding, and when the binding sections terminate (if ever)
4. Align the MOU with your long-term legal and financial strategy
5. Include an expiration date, sometimes called a sunset clause

MOU vs. LOI: How is a MOU different than a LOI?

Letters of intent are also used in real estate transactions. LOIs are often less formal than a MOU, are used for basic purchases and leases instead of complex multi-party arrangements, and tend to be more one-sided before a take-it-or-leave-it contract is offered. Choosing between using a MOU or LOI often depends on the nature of the deal and how much detail you want to capture upfront.

Oklahoma Real Estate Attorneys

The attorneys at Avenue Legal Group focus our practice on real estate transactions and representations. We offer comprehensive legal support in drafting and reviewing MOUs, LOIs, joint venture agreements, and more. Whether you’re initiating a new project or solidifying a business partnership, our attorneys provide strategic, proactive guidance that can keep your project moving in the right direction.

Contact Avenue Legal Group to discuss your real estate transaction and how we can help protect your interests.