Example of Side Letter Agreement

A side letter agreement is a legal document that is executed alongside a main contract to address specific clauses or issues that are not covered in the main contract. It is often used to clarify or supplement certain terms that are open to interpretation or may cause confusion. Here’s an example of a side letter agreement and how it works.

Suppose a company enters into a service agreement with a vendor for five years. The contract specifies the scope of services, payment terms, and termination clauses. However, the contract does not mention what would happen if the vendor fails to meet the service levels agreed upon. To address this issue, the company and the vendor may sign a side letter agreement that outlines the consequences of non-compliance.

The side letter agreement may state that if the vendor fails to meet the service levels, the company has the right to terminate the contract or withhold a percentage of the payment until the issue is resolved. It may also specify a timeframe within which the vendor must rectify the issue to avoid penalties.

Another example of a side letter agreement is when a landlord and a tenant sign a lease agreement, but the tenant wants to make certain alterations to the property, such as installing a new air conditioning system. The lease agreement may not permit such alterations without the landlord`s consent. To address this issue, the landlord and the tenant may sign a side letter agreement that allows the tenant to install the air conditioning system with certain conditions, such as hiring a licensed professional and restoring the property to its original condition at the end of the lease term.

In summary, a side letter agreement is a useful tool for addressing specific clauses or issues that are not covered in the main contract. It can prevent misunderstandings, disputes, and legal issues down the line. Before signing a side letter agreement, it’s crucial to seek legal advice and ensure that it aligns with the terms of the main contract and does not contradict any existing agreements or laws.