In the previous blog post, I addressed when a letter agreement or side letter would be used between professional parties (click here). The question now is, what would you write in such a letter agreement or side letter?
A letter agreement is typically printed on the letter head of the sender and will have the following elements:
- the sender’s address;
- the place and date;
- a subject line (but not a title);
- the addressee’s address;
- a salutation (generic – Dear Madam, Sirs – or to the individual representing the other party);
- an introductory sentence referring to the background of the letter or to an agreement to which it pertains;
- the substantive terms of agreement;
- a closing sentence requesting the addressee to countersign a copy;
- the sender’s signature; and
- the addressee’s signature (underneath) (preceded by the words “for acceptance” or “for agreement”).
The introductory sentence typically identifies the transaction in connection with which it is agreed or otherwise its purpose. For example:
We refer to the Share and Asset Purchase Agreement between Weagree B.V. (“Weagree”) and WW Legal Solutions B.V. (“WW”) and entered into on 9 March 2010 (the “Acquisition Agreement”). By this letter agreement (the “Agreement”) we agree that…
Note that the defined terms are not printed in bold, which is good practice (as opposed to defining in normal agreements). Many drafters of a letter agreement refer to the sender as we and to the addressee as you; this is not necessary. (Note that for convenience of reading, the introductory sentence started that way. It is appropriate to revert to the concept we and you in the concluding sentence.) Referring to we may even be ambiguous if “we” could also refer to “both parties”. It is more appropriate to name the parties or refer to them by their respective functions.
The substantive terms of a letter agreement are usually not subdivided in articles and subsections, except that a subdivision in paragraphs with simple numbers is often helpful. The substantive terms may well include miscellaneous provisions, such as a choice of law and a choice of jurisdiction.
The closing sentence could be as follows:
If you agree to the above, please sign one copy of this Letter Agreement and return it to me at the above address.
The signature blocks should fit the nature of the parties to the letter agreement. The individual signing the letter agreement does so (when duly authorised) on behalf of the legal entity. The signature blocks are therefore formatted the way they are formatted in normal agreements.
The addressee’s signature block is typically preceded by the words For acceptance (suggesting that the letter itself is an ‘offer’ in the legal sense), For agreement (reflecting the truly mutual nature of the letter agreement) or For acknowledgement (in case the letter agreement contains the disclosures that a seller makes in discharge of its duty to inform.