What is an Agreement to Agree?
What is an agreement to agree? An agreement to agree is an agreement to reach a further agreement at a future point in time. That agreement may be fuller, more complex or different to the original understanding of the parties. Importantly, agreements to agree are not recognised by Australian law as a legally binding agreement.
In this article, we explore agreements to agree under Australian law.
Author: Farrah Motley, Legal Principal of Prosper Law.
The use of agreements to agree in business
Agreements to agree are commonly used by businesses in Australia.
Contracts can take a long time to write and negotiate. However, businesses seeking to record their intended dealings with one another may want to move quickly. For this reason, businesses may wish to enter into an "agreement to agree".
An agreement to agree may convey the understanding of the parties with respect to:
the commercial basis for the agreement
the basic terms to be included in the agreement
when the further agreement is expected to be agreed
An agreement to agree can be very short, or more detailed. However, agreements to agree are generally intended to be quick, straightforward records of the basic agreement reached by the parties and are therefore typically simple documents.
Why are agreements to agree not enforceable?
Here's the thing - an agreement to agree may be legally enforceable if it contains all the elements of a binding contract.
However, typically, agreements to agree are expressed not to be legally binding and do not contain all the elements of a binding contract.
Because of this, the parties are free to:
refuse to enter into a further agreement
carry out the promise indicated in the agreement to agree
cease negotiations
seek to change what was agreed