As a business owner, you will already know that business deals involve significant paperwork. Whilst a signed commercial contract usually signals the end of negotiations, various other legal documents can emerge during the journey. One such document is a side letter, which can aid negotiations if used correctly. This article will explore the purpose of a side letter and how your business can effectively use one to assist its commercial contract negotiations.<\/p>\n\n\n\n
Many businesses use a side letter to provide extra information regarding certain aspects of the potential business deal. In effect, the document aims to document the general intentions and motivations of the parties.<\/p>\n\n\n\n
Why not put this additional detail in the contract? A commercial contract contains legally binding wording. Accordingly, written agreements should be clear, concise and avoid ambiguity. Detailing general intentions and motivations on paper can be vague. Thus, it is best kept in a separate document.<\/p>\n\n\n\n
A helpful way of looking at a side letter is to view it as a confirmation of the principles behind the agreement, whilst the legally enforceable contract contains the rules of the deal. This is similar to a government department deciding to pursue the principle of \u2018crime prevention\u2019, so passing a formal law against burglary. The side letter can demonstrate the moral effect of the deal, whilst the actual contract confirms its exact boundaries.<\/p>\n\n\n\n
Side letters are not mandatory, and because of this, some businesses never use them. However, many organisations view side letters as a helpful step in setting the foundation for the written agreement.<\/p>\n\n\n\n
This can include a situation where the parties wish to set a non-legally binding foundation for the contract negotiations. For example, the side letter may contain ‘MFC provisions’ (otherwise known as most-favoured-customer wording or ‘MFC clauses’). This could put forward the informal arrangement that your business will attempt to finalise commercial transactions with that party in good faith before any other organisation.<\/p>\n\n\n\n
Other situations include rent review wording within side letters accompanying commercial leases or side letters confirming the role of a private fund manager.<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n