A side letter or side agreement or side letter arrangement is an agreement that is not part of the underlying or primary contract or agreement, and which some or all parties to the contract use to reach agreement on issues the primary contract does not cover or for which they require clarification, or to amend the primary contract. Under the law of
contract
A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tran ...
s, a side letter has the same force as the underlying or primary contract. However, the validity of side letters has been denied by some courts in specific circumstances.
Side letters are often used in financial or property transactions, or other commercial contracts. They are usually in the form of a letter signed by parties signatory to the primary contract but can also be an oral agreement. As part of a business organization's governance strategy, side letters should be under similar controls to any other contractual agreement, as they can have significant financial or operational impact, or expose the organization to risks of many types.
Side letters may also be used in relation to private fund contracts, for example a particular investor may wish to vary the terms of a
limited partnership
A limited partnership (LP) is a form of partnership similar to a general partnership except that while a general partnership must have at least two general partners (GPs), a limited partnership must have at least one GP and at least one limited ...
agreement with respect to that particular investor. An investor might be seeking more favourable terms under the contract or might need the side letter to enter the venture under terms to meet regulatory requirements.
In Barbudev v Eurocom Cable Management Bulgaria Eood and others (2011), the
High Court decided that a side letter provided an opportunity to invest on terms to be agreed, and was therefore an "agreement to agree", not a binding contract. The
Court of Appeal
A court of appeals, also called a court of appeal, appellate court, appeal court, court of second instance or second instance court, is any court of law that is empowered to hear an appeal of a trial court or other lower tribunal. In much of t ...
later upheld the ruling.
One Essex Court
One Essex Court is a set of barristers' chambers in London, specialising in commercial litigation, which was founded in 1966.
Currently comprising 131 full-time members, 52 of whom are ''silks'' or King's Counsel. One Essex Court's members inclu ...
Georgi Velichkov Barbudev v. Eurocom Cable Management Bulgaria EOOD & Ors
published 30 April 2012, accessed 5 March 2021
References
Contract law
Legal documents
{{contract-law-stub