How Binding Is a Letter of Intent Under French Law?

How binding is a letter of intent under French law?

Foreign deal teams often assume that a letter of intent, a memorandum of understanding or a term sheet is not binding. French law makes no such assumption. A preliminary document is classified by what it does, not by what it is called. Depending on its wording, it may bind you to nothing, oblige you to negotiate in good faith, bind one party while the other holds an option, or already constitute the final contract.

This article explains the four instruments French law and case law recognise: the declaration of intent, the accord de principe (agreement in principle), the promesse unilatérale (unilateral promise, the French option contract governed by Article 1124 of the Civil Code) and the promesse synallagmatique (reciprocal promise), which is already the contract. It then covers the réitération clauses that postpone the deal to the notarial deed, and the paid withdrawal mechanisms, the dédit (paid right of withdrawal) and the arrhes (forfeitable deposit).

What does your preliminary document really do?

The four types of preliminary agreement under French law

French practice and case law distinguish four situations between free negotiation and a concluded contract. Your document falls into one of them, whatever its title.

The courts classify on substance alone. An accord labelled "in principle" that in fact contains definitive commitments is treated as definitive (Cass. com., 31 janv. 2017, n° 15-17.093), and conversely there is no accord de principe at all where one party merely envisaged one subject to conditions the other never met (Cass. com., 31 janv. 2017, n° 15-18.975). Even a commitment declared "purely moral" can bind where an unequivocal intention to be obliged appears from the file (Cass. com., 23 janv. 2007, n° 05-13.189). The drafting consequence is direct: every sentence of a preliminary document should be written in the knowledge that a French judge may one day place it in one of these four categories.

What an accord de principe (agreement in principle) actually obliges you to do

The agreement in principle, unknown to the Code civil and defined entirely by the courts, obliges the parties to negotiate the contemplated contract, in good faith, without fixing its essential characteristics in advance. Because the essential terms are not defined, a party faced with the other's refusal to negotiate cannot obtain the forced conclusion of the contract; the remedy is damages for the harm the refusal causes, and the liability is contractual, since a precise contractual undertaking to negotiate has been openly violated (Cass. com., 10 janv. 2012, n° 10-26.149). A party that formally participates in the negotiation while abusively refusing every proposal commits an abuse of right and answers for it in the same way.

Two practical points matter for deal teams:

• An accord de principe can carry specific, immediately enforceable obligations, an exclusivity of negotiation being the classic example: those clauses are ordinary contractual undertakings and their performance can be ordered.
• The accord must actually have been agreed: a proposal of an agreement in principle, conditional on steps the other party never took, creates nothing (Cass. com., 31 janv. 2017, n° 15-18.975).

The promesse unilatérale: the French option contract under Article 1124

The unilateral promise is the contract by which one party, the promisor, grants the other, the beneficiary, the right to opt for the conclusion of a contract whose essential elements are determined, and for whose formation only the beneficiary's consent is missing (C. civ. Art. 1124). It is the standard French instrument for share deals, real-estate acquisitions and pre-agreed exits, and it binds the promisor more firmly than most foreign parties expect.

Conditions of validity of a unilateral promise: substance and form

The promise obeys the general conditions of contract validity. The contemplated contract's essential content must be certain: for a promise of sale, the thing and the price must be determined or determinable (C. civ. Art. 1583), and a price whose payment depends on the sole will of the party who owes it is no price at all (C. civ. Art. 1304-2). The promise must also be accepted as a promise by its beneficiary; signing "vu et pris connaissance" ("seen and taken note of") on a document headed "unilateral offer of sale" is not consent (Cass. 3e civ., 19 oct. 2011, n° 10-30.655). Validity, including the promisor's consent and capacity, is assessed at the date of the promise, not at the exercise of the option (Cass. civ., 7 janv. 1982). As to form, promises are in principle consensual, but a unilateral promise of sale of real property or of real-property rights must be recorded in a deed and registered on pain of nullity (C. civ. Art. 1589-2).

The option period, the indemnité d'immobilisation (immobilisation indemnity) and the exercise of the option

The option's regime is what the parties make it. Where no period is stipulated, the courts give the beneficiary a period aligned on the five-year prescription of the right, subject to the promisor's ability to serve a formal notice to elect within a reasonable time; a beneficiary who waited more than eleven years had not exercised the option within a reasonable period (Cass. com., 27 janv. 2021, n° 18-22.492). A promisor whose promise has become open-ended may also terminate it as any commitment of indefinite duration.

The exclusivity granted to the beneficiary is commonly paid for by an indemnité d'immobilisation (immobilisation indemnity, the price of the exclusivity): that sum compensates the freezing of the asset, is due without proof of any loss, and is not a penalty clause since it sanctions no breach (Cass. civ., 5 déc. 1995). Where its amount was set by reference to the immobilisation period, the judge must consider reducing it if the beneficiary renounced early (Cass. 3e civ., 5 déc. 1984, n° 83-12.895); and where the sum is so heavy that the beneficiary is economically compelled to exercise the option, the promise becomes a reciprocal one (Cass. com., 20 nov. 1962).

Exercise must follow the agreed forms exactly: a stipulated registered letter means a registered letter, even where a general notice clause allows hand delivery (Cass. com., 30 août 2023, n° 21-24.090), and an option exercised without the agreed payment is no exercise at all.

Revocation by the promisor is ineffective under Article 1124

Since the reform, revocation of the promise during the option period does not prevent formation of the promised contract: the beneficiary may still exercise the option, and the contract forms by that act alone (C. civ. Art. 1124). The Cour de cassation has aligned the treatment of promises concluded before 1 October 2016 on the same solution (Cass. 3e civ., 20 oct. 2021, n° 20-18.514; Cass. com., 15 mars 2023, n° 21-20.399). A contract concluded with a third party in violation of the promise is void if the third party knew of the promise (C. civ. Art. 1124). The full text of the provision can be read on our Article 1124 page.

After the option is exercised: effects, refusal by the promisor, default by the beneficiary

Once the option has been exercised in the agreed conditions, the promised contract is definitively concluded by that act alone, in the terms the promise fixed, provided the promise contains all the determining elements of the contract (Cass. com., 30 nov. 2004). Unless the parties agree otherwise, the contract takes effect at the date of exercise: from that date the claim for the agreed price arises, the prescription of any action for nullity of the contract begins to run, and in a sale the ownership of the asset and its risks pass to the buyer.

The promisor may validly refuse to perform after exercise only where it invokes a dédit that the promise reserves to it and observes the stipulated conditions for its exercise. Where the refusal is unjustified, the beneficiary can obtain:

• a judgment standing in for the contract, where the essential elements are set out in the promise and the promise is self-sufficient; the courts have granted it for promises of lease, of patent licence and of employment;
• damages, where formation of the promised contract still requires a choice or a further act by the promisor, such as the handing over of funds under a promise of loan; the damages can include the loss of the chance the contract represented, and late performance can itself be compensated.

The action to enforce the promise is a personal action prescribed by five years (Cass. 3e civ., 8 juill. 2021, n° 19-26.342).

Default can also come from the beneficiary. A beneficiary who renounces the option owes the stipulated indemnité d'immobilisation, and is released only where its abstention is attributable to the promisor (Cass. civ., 15 juin 1982). A beneficiary who exercises the option but then fails to conclude the promised contract has not performed its undertaking: the promisor may seek résolution (termination for non-performance) of the promise, but must ask the court for it, since no party may take justice into its own hands (CA Paris, 19 nov. 1993), and that termination is refused where the conditions of the promise were in fact respected. Promisors who had reserved a period to state their position on the price and kept silent on the price the beneficiary proposed were held to have accepted it, which made the sale perfect (Cass. civ., 12 janv. 1988). Conversely, the beneficiary may validly refuse to sign a notarial deed that does not conform to the terms of the promise (Cass. 3e civ., 27 juin 2019, n° 18-18.310).

When your MOU is already the contract: the promesse synallagmatique (reciprocal promise)

The reciprocal promise is the category foreign parties most often enter without intending to. Where the parties have not stipulated an option and have agreed on the essential terms, they are definitively bound: for a sale, the promise of sale is the sale once there is reciprocal consent on the thing and the price (C. civ. Art. 1589). The heading "memorandum", "protocole" (protocol) or "compromis" (preliminary sale agreement) changes nothing. The courts have found a concluded contract where the accord contained all determining elements and merely postponed the formal deed to a later date, where the parties had begun performing, the buyers taking possession and paying the price, and where the parties exchanged cross promises of purchase and sale on the same object in the same terms (Cass. com., 22 nov. 2005, n° 04-12.183). Where each cross promise carries its own option, the sale is perfect as soon as either option is exercised (Cass. com., 27 sept. 2017, n° 16-13.112). Even a substitution clause allowing the beneficiary to bring in a party of its choice does not make the promise unilateral (Cass. 3e civ., 28 juin 2006, n° 05-16.084).

Once this stage is reached, the consequences are those of a concluded contract: transfer duties fall due on a sale that attracts them, the intermediary's commission is earned, and the party that refuses to complete faces termination at its expense, enforced performance or damages (C. civ. Art. 1217). The ways out have to be stipulated before signature: a genuine option, a properly drafted right of withdrawal (dédit), a suspensive condition, or an express stipulation that passing the deadline for the notarial deed makes the sale lapse; a bare three-month duration clause without a lapse sanction does not suffice (Cass. 3e civ., 9 juill. 2014, n° 13-12.470; Cass. 3e civ., 30 nov. 2017, n° 16-25.107).

Réitération clauses: is the deal concluded before the notarial deed?

Many French preliminary agreements provide that the contract will be "reiterated" (réitération), that is, signed again before a notary (notaire) in authentic form. The legal effect of that clause depends entirely on what the parties made of it. They may decide that the contract will only be legally concluded on réitération in authentic form, the deed being in their eyes a constitutive element of their consent and not a mere step in performance (Cass. 3e civ., 19 juin 2012, n° 10-22.906). But the intention must be established: the mere statement that the act is to be reiterated does not in itself make réitération a condition of the commitment (Cass. 3e civ., 28 mai 1997), and nor does a clause postponing the transfer of ownership to the deed, absent other circumstances showing the parties did not intend to be bound earlier. Where no such condition exists, the first agreement is definitive.

The two situations produce opposite results when the deed is not signed in time:

• Where the parties were already bound, a deadline fixed for réitération does not make the promise lapse unless lapse is expressly stipulated as its sanction (Cass. com., 23 oct. 2012, n° 11-24.349; Cass. 3e civ., 22 juin 2023, n° 22-12.794). Expiry of the deadline marks the moment from which either party can serve a formal notice to complete and then ask the court for enforced performance, where the suspensive conditions are fulfilled at that date (Cass. 3e civ., 4 févr. 2021, n° 20-15.913), or for termination of the agreement (Cass. 3e civ., 1 oct. 2020, n° 19-16.561).
• Where réitération was made a condition of the commitment itself, the promise lapses if the authentic deed is not signed within the agreed period (Cass. 3e civ., 9 juill. 2014, n° 13-12.470; Cass. 3e civ., 7 sept. 2022, n° 21-17.628). Where no period was agreed, the parties remain bound by the condition of réitération, which is not limited in time (Cass. 3e civ., 30 janv. 2020, n° 18-25.381).

The parties keep control of the timetable. They may renounce, in unequivocal terms, an expired réitération deadline and proceed with the deed (Cass. 3e civ., 20 mars 2025, n° 23-20.170). Where the deed is signed, the commitment is treated as having arisen at the date of the initial act, which fixes the starting point of time limits attached to the contract (Cass. 3e civ., 29 janv. 1992, n° 90-15.555). And the commitment to reiterate may itself be placed under a suspensive condition: payment of the price by the date of the deed at the latest (Cass. 3e civ., 10 mai 2005, n° 03-19.238) and approval of the agreement by a committee (Cass. com., 17 mars 2009, n° 08-12.830) have both been upheld.

Has your preliminary deal already become the contract?

Paid withdrawal rights under French law: dédit, arrhes and acompte

French law lets the parties reserve a right of withdrawal, the dédit, against payment of a sum or even for free (Cass. com., 30 oct. 2000, n° 98-11.224). The mechanism must not be confused with a penalty clause, and the courts decide the qualification: a clause is a dédit where it permits a party to free itself unilaterally from the contract for a price, and a penalty clause where its object is to compel performance and fix damages for breach in advance (Cass. com., 5 déc. 2018, n° 17-22.346). The distinction has direct financial consequences, because a penalty clause can be judicially revised while the price of a dédit is simply due. The courts have qualified as a dédit, and not a penalty clause:

• a clause allowing a project owner to cancel a construction contract against payment of ten per cent of the price, since it compensates the builder's costs and lost profit and sanctions no breach (Cass. 3e civ., 8 janv. 2026, n° 24-12.082);
• a clause giving a right, on early termination caused by the other party, to a fixed and definitive indemnity whose amount varied with the date of the termination (Cass. com., 14 oct. 1997);
• a clause allowing a seller to renounce a stipulated buy-back of the goods against abandonment of the 20 per cent instalment it had paid (Cass. com., 18 janv. 2011, n° 09-16.863);
• a clause making the debtor of a photocopier maintenance contract liable, on early termination from whatever cause, for an indemnity of 110 per cent of the copy volume remaining to the term, since it compensates a loss of earnings rather than sanctioning a breach (CA Montpellier, 15 déc. 2022, n° 22/01571).

Where the accord was concluded with arrhes (a forfeitable deposit), each party may withdraw: the payer by forfeiting the sum, the payee by returning double (C. civ. Art. 1590). But the qualification is disputed in practice, and the courts lean heavily towards reading sums paid on account as an acompte, a first instalment of the price and an act of performance, which withdraws nothing and binds fully: that is the reading where nothing shows a withdrawal right was reserved, where the contract deducts the sums from the price, or where the receipt promises payment of the balance. A party planning to rely on a dédit should also know that the right is lost by performing the contract, must be exercised in good faith, and requires any stipulated prior formal notice to be observed (Cass. 1e civ., 27 mai 1975, n° 74-11.257).

Frequently Asked Questions

This article is for general information only and reflects French law as published at the date shown above. It does not constitute legal advice. Always seek qualified advice before acting.