Side letter: Overview, definition and example
What is a side letter?
A side letter is a separate, informal agreement that is made in addition to a main contract. It typically addresses specific issues or clarifications that are not covered in the main agreement. Side letters are often used to outline special terms, conditions, or promises between the parties that are not part of the primary contract, but still important to the deal.
Why are side letters important?
Side letters are important because they allow the parties involved to address specific points that may not fit neatly into the main agreement. They can provide flexibility and ensure that all parties are clear on certain aspects of the deal. However, side letters should be handled carefully to avoid misunderstandings or conflicts between the terms in the main contract and the side letter.
Understanding side letters through an example
Imagine a company, XYZ Corp, enters into a long-term supply agreement with a vendor, ABC Ltd. The main contract outlines the standard terms for pricing, delivery, and payment. However, XYZ Corp and ABC Ltd also agree to an additional discount for large orders, which is not explicitly included in the main contract. Instead, they create a side letter confirming this special arrangement.
The side letter serves as a record of the agreed discount and ensures that both parties are clear about this specific term, even though it’s not part of the primary contract. If a dispute arises later, the side letter can be referenced to confirm the agreement.
Example of a side letter clause
Here’s how a side letter clause might look in a contract:
“The parties agree that any additional terms, agreements, or clarifications not included in this Agreement but agreed upon by both parties will be documented in a side letter. Such side letters will be considered part of the overall agreement, provided they do not conflict with the terms of the primary Agreement.”
Conclusion
A side letter is a useful tool for addressing specific points that are outside the scope of the main contract. While it provides flexibility, it’s crucial that side letters are carefully drafted and agreed upon to avoid inconsistencies with the main contract. Understanding how side letters work ensures that both parties are clear about any additional agreements and can help prevent future disputes.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.