Contract Glossary
Preliminary Agreement
Definition
An agreement reached during negotiations that establishes certain terms while acknowledging that a final, comprehensive contract has not yet been executed. Preliminary agreements fall on a spectrum from non-binding expressions of intent to partially binding commitments that obligate the parties to negotiate in good faith toward a definitive agreement.
In Practice
Two companies agree to merge. They sign a preliminary agreement committing to exclusivity for 90 days, outlining the approximate valuation range ($80-100 million), and requiring both sides to negotiate in good faith toward a definitive merger agreement. During those 90 days, neither company can entertain competing offers. If one side walks away without good reason, the preliminary agreement may support a claim for damages, at least for the binding provisions like exclusivity and confidentiality.
Example Clause
The Parties acknowledge that this Preliminary Agreement reflects their mutual intent to negotiate in good faith toward a definitive agreement on the terms outlined herein. Sections 4 (Confidentiality), 5 (Exclusivity), and 8 (Governing Law) of this Preliminary Agreement shall be binding upon execution. All other provisions reflect the Parties' current understanding and are subject to the execution of a definitive agreement.
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