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If you enter business contracts, you must ensure that the terms of your arrangement are clear and unambiguous. Within most business deals, the legally binding contract is the main document. However, your company can use other documents to clarify or amend the binding contract. One such example is known as a side letter. This article will explain the primary uses of a side letter, so your business can determine whether it is necessary within your commercial contract arrangements.
What is a Side Letter?
The purpose of a side letter is to clarify the main contract terms. As such, most side letters will simply add a layer of detail to the contract rather than overturn it. Some lawyers compare a side letter to the commentary in a sporting match. You watch the game for the images, but the commentary adds detail to what you see. Similarly, most side letters act to describe the parties’ intentions and clarify specific points of the written agreement.
Companies can sometimes dispute whether the contents of a side letter are legally binding or not. While side letters can occasionally be legally binding, they are primarily used to handle more administrative matters. Usually, the contract will contain all critical terms.
Uses of a Side Letter
A side letter is a helpful way of adding additional information to a written agreement. They can record any last-minute clarifications between your company and the other party to the legally enforceable contract.
Example
Let us look at a quick example. Suppose your business provides catering services to other companies. The commercial contract records:
- the weekly amount the client will pay your business;
- the arrangement start date; and
- how much notice either party must give to terminate the arrangement.
However, it would be helpful for your organisation to know more details such as where, when and how the arrangement should take place. This is where a side letter can be beneficial. In this instance, it could clarify additional details such as where and when to deliver the food.
Furthermore, it could vary any vague terms of the original contract. For example, the contract may simply state ‘the provision of healthy lunches’, which is unclear. A side letter could clarify the exact requirements of the club with suggested lunch menus and ingredients they wish to receive. Additionally, the letter may build trust and goodwill between the parties. For example, it could record that the arrangement’s primary purpose is to ensure the client’s excellent health.
Moreover, the letter can record any last-minute changes to the deal. This is unusual, and in reality, you should only use a side letter to record minor changes. If, for example, you signed a primary contract to supply goods to a business every Wednesday, but the parties wished to change the delivery date to Tuesday, you could use a side letter to do so.
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Is There a Standard Side Letter Template?
No, each letter is unique to suit the contract and scenario. For example, a side letter supporting a commercial agreement to supply food products would be very different to one providing IT services.
Depending on its contents, some businesses will label a side letter as a ‘comfort letter’. This is because the document aims to clarify and smooth over vague wording rather than replace the contract or renegotiate terms. A side letter usually reflects the good faith between parties and the intention to enter legal relations without further complex negotiations.
Key Takeaways
Side letters provide commentary on the intention behind the legally enforceable rights of a commercial contract. Your company should use side letters to clarify the primary purpose and obligations under the written agreement. Therefore, they take place within an existing contractual relationship and can help avoid future misunderstandings over any key commercial terms.
If you need help with side letters, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Usually, no. Courts only tend to hold them legally binding if they contain new clauses, a high amount of detail and contain the parties’ signatures. In short, High Court judges only tend to give them legal weight if they appear to be a ‘mini contract’ when read in their entirety.
They are relatively common but not mandatory. Their use will usually depend on how clearly the wording details the wishes of your company and your client within the existing contract.
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