As a business owner negotiating commercial contracts, you should consider using a side letter as part of the negotiating process. Most commercial negotiations take place with the end goal of signing a legally binding contract. However, parties may require additional documentation before agreeing to the written agreement. One such document is a side letter. This article will explain the main purposes of using a side letter, so your company can determine whether it will benefit your commercial contract negotiations. <\/p>\n\n\n\n
A side letter is a legal document seeking to provide additional background to any commercial deal. Its primary purpose is to add detail and context to the contract wording rather than replace it. <\/p>\n\n\n\n
Some practical uses of side letters include: <\/p>\n\n\n\n
These are discussed in detail below.
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A side letter is an invaluable way of adding further detail and context to the wording of a commercial contract. For example, your company may use it to record any last-minute alterations to the written agreement.<\/p>\n\n\n\n
Suppose your company supplies ten computer monitors per month to an expanding IT business.\u00a0 The contract states that your organisation will send ten \u2018HP-branded\u2019 monitors. However, in the last week (just before signing the contract), you receive better-quality monitors from another brand. The parties may prefer to have the side letter mention that any references to \u2018HP-branded\u2019 monitors should now be treated as the brand with the newer offering.<\/p>\n\n\n\n
Side letters can also provide background and context rather than recording amendments to contractual wording.<\/p>\n\n\n\n
For example, suppose your company is due to start providing daily lunch to a local sports club.\u00a0 The written agreement addresses the main concerns such as payment details, the start date of the service and how much notice is needed to end the contract. However, it lacks details about the club\u2019s lunch expectations.<\/p>\n\n\n\n
In this way, a side letter may confirm:<\/p>\n\n\n\n
This kind of detail helps the parties understand the merits and purpose of the agreement, which is vital to ensure the contract is a future success.<\/p>\n<\/div>\n\n\n\n
While some commercial deals may be straightforward, others require more careful consideration of the morale and thoughts of the other party. Where this is the case, sensible and reasonable notification of a neutrally worded side letter can help persuade a party with reservations to sign a commercial agreement.<\/p>\n\n\n\n
This is because the negotiation and agreement of a side letter can help show that your organisation is interested in setting sensible expectations upfront and ensuring the small details are right.\u00a0<\/p>\n\n\n\n
It is usually easier to agree to the terms of a side letter than the contract terms within a legally binding agreement. This is for several reasons, which include:<\/p>\n\n\n\n