Employment Law

Understanding the Preliminary Negotiations Contract Law

By December 1st, 2021 No Comments
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A preliminary agreement, also known as a memorandum of understanding or heads of agreement, outlines the intent of parties to enter into a transaction. These agreements are common in the real estate business, where the buyer and the seller sign the letter of intent before going ahead with the transaction. Can the seller force you to proceed with the deal if you have changed your mind before signing the agreement?

Contact our New Jersey employment law attorneys to get help with business and employment contracts. We understand that the clauses and the technical language used may be challenging to understand. Here are more details on the law: 

What is a preliminary agreement? 

This is a non-binding document between two parties outlaying the proposed terms, framework, and conditions of entering into an agreement. This is just something to show that you have begun your negotiations and you are almost in the final stages of reaching a definitive agreement.

After signing the letter of intent or preliminary agreement, the seller is prohibited from further negotiations with third parties during the prescribed period. 

What is a contract? 

A contract is a binding agreement between two parties who are competent to lawful consideration. To qualify as a contract, it has to meet the following essential elements: 

  • Offer: One party proposes to the other about their offer to do or not to do something for a return. 
  • Acceptance: The other party conveys their approval to the offer and accepts the conditions outlined by the other party. 
  • Consideration: Both sides will fulfill the subject matter mentioned in the agreement, and it is legally executable. 

Apart from the three basic elements, a binding contract must also have an intention to create legal relations and the capacity to enter into an agreement. 

When a preliminary negotiation becomes legally binding

A preliminary negotiation is non-binding but can be enforced, compelling you to compensate the other party or close the deal. The court will look at a couple of factors to determine whether your letter of intent is a binding agreement. The first one is a qualifying language that should indicate your obligations are not legally binding. The other consideration is the timing of obligations and events.

If the crucial steps are outlined to take place after the signing of the formal agreement, the preliminary negotiation will not be binding in this case. The letter of intent will be legally binding if it contains critical terms found in a legal agreement. If not, it is non-binding. 

Protecting yourself in an agreement

As discussed above, a lot of technical language and numerous clauses go into writing contracts. Even a preliminary negotiation can be legally binding if it contains specific clauses that are found informal agreements. Therefore, the best way to protect yourself is to have an attorney review everything before you sign. 

Our New Jersey employment law attorneys are dedicated to protecting your rights before you enter into any agreement. With years of experience with contracts, agreements, and other clauses between employees and employers, you can be assured you have the best side representing your interests. Call our offices today at 973-354-2931 for consultation. 

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