Commercial and services contracts · 04
Memorandum of understanding or heads of agreement
Records what two parties have agreed in principle, and what they have not, before the full agreement is negotiated.
Records what two parties have agreed in principle, and what they have not, before the full agreement is negotiated.
Above all, an unambiguous statement of which clauses bind and which do not. Then the objective, the intended structure, exclusivity if any, cost allocation, confidentiality, the conditions precedent to a full agreement, and a long-stop date.
This is the most expensive routine error in South African commercial practice: an MOU the parties treat as non-binding while its language makes it a contract. If the document records agreement on the essential terms and there is an intention to be bound, calling it an MOU does not save anyone. Either say expressly that the document creates no binding obligations save for clauses X, Y and Z — or accept that it is the deal.
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