What is a Side Letter Agreement in Real Estate?

What is a Side Letter Agreement?

“A Side Letter Agreement is an agreement considered separate and apart from the underlying contract but facilitative of the underlying contract”

A side letter or side agreement or side letter arrangement is an agreement that is not part of the underlying or primary contract or agreement, and which some or all parties to the contract use to reach an agreement on issues the primary contract does not cover or for which they require clarification, or to amend the primary contract. Under the law of contracts, a side letter has the same force as the underlying or primary contract. However, the validity of side letters has been denied by some courts in specific circumstances.[1] Side letters are often used in financial or property transactions or other commercial contracts. They are usually in the form of a letter signed by parties signatory to the primary contract but can also be an oral agreement. As part of a business organization’s governance strategy, side letters should be under similar controls to any other contractual agreement, as they can have significant financial or operational impact, or expose the organization to risks of many types.[2]

Side letters may also be used in relation to private fund contracts, for example, a particular investor may wish to vary the terms of a limited partnership agreement with respect to that particular investor. An investor might be seeking more favorable terms under the contract or might need the side letter to enter the venture under terms to meet regulatory requirements.

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