What is a Preliminary Agreement?
A preliminary agreement is entered into between parties with an intention of concluding a more comprehensive agreement at a later date. From a legal standpoint, there are only two types – those that are legally binding and others that are not.
Many industries now use these types of agreements to safeguard against the risk of not getting paid for the preliminary work completed. Some other benefits include:
- It shows the commitment of the parties to the transaction
- Gives a party exclusivity on a deal
- It may record confidentiality obligations
- It can be used to form the framework of the contract, so that if negotiations become difficult, at least that much has been agreed upon and documented
For example, John is a builder and is tired of spending money on undertaking preliminary work (e.g. site inspections, preparation of design plan etc.) for prospective clients only to find out later that the client is no longer interested because of a change of heart. John can prevent this from happening by entering into a preliminary agreement with all prospective clients. His written agreement can be used to set out:
- Items that need to be undertaken prior to commencing any building works
- That the agreement is legally binding
- The obligations of both parties under the agreement such as:
- What is the scope of the agreement?
- What is the time frame for completion of the work?
- How can the agreement be terminated?
- The amount payable for the works by the client. Ensure that the amount claimed is only relevant to the preliminary agreement and not any other subsequent agreement.
If you need any further information or assistance in regards to preliminary agreements, please contact our team of lawyers at The Quinn Group on (02) 9223 9166 or submit an online enquiry form today.