Agreement to Agree in Contracts: Understanding the Basics

When it comes to drafting contracts, one common issue that often arises is the “agreement to agree” or “agreement to negotiate” clause. This clause typically arises when parties are not able to fully agree on all the specific terms of an agreement, but they want to proceed with the negotiation in good faith. This article will explore the basics of the agreement to agree clause and its potential implications.

What is an Agreement to Agree?

An agreement to agree is a type of contract clause that obligates parties to negotiate, in good faith, the final terms of an agreement. This clause is usually inserted into a contract when parties cannot agree on all the terms at the time of signing. In such cases, the parties agree to continue negotiating the remaining details of the agreement until they reach a final agreement.

What are the Potential Implications?

While an agreement to agree clause may seem like a practical solution to move things forward, it has the potential to lead to legal disputes. For example, if parties do not agree on the final terms of the agreement within a specified time frame or if one party pulls out of the negotiation, the other party may suffer damages. Therefore, it is critical to draft an agreement to agree clause carefully, with clear terms and conditions.

How to Draft an Agreement to Agree Clause?

Drafting a sound agreement to agree clause requires careful consideration of several factors. Here are some essential points to keep in mind:

1. Clear identification of the parties involved and the subject matter of the negotiation

2. Specify the time frame within which the parties will negotiate and finalize the agreement

3. Specify the terms and conditions that the parties have agreed upon and those that still need to be negotiated.

4. Provide for alternative dispute resolution mechanisms, such as mediation or arbitration, to resolve any disputes that may arise during the negotiation process.

5. Include a termination provision that outlines the circumstances under which the parties can terminate the agreement and walk away from the negotiation.

Conclusion

The agreement to agree clause is a useful tool in contract negotiations. However, it should be used with caution as it has the potential to lead to legal disputes. It is essential to draft the clause carefully, with precise terms and conditions that protect the interests of both parties. By doing so, you can minimize the chances of legal disputes and ensure a successful negotiation process.