It is common for business people to enter into various forms of interim agreements. The purposes for these agreements vary. Sometimes they are used to explore whether or not a business deal can be made. Other times they are intended to operate as binding agreements until a more formal and detailed agreement can be reached.

Interim agreements come in a variety of forms and carry a variety of titles. Some examples include "letters or intent", "agreements in principle" and "offers to lease".

A party entering into an interim agreement must determine whether they want the interim agreement to be legally binding on the parties, in whole or in part. Different wording in the interim agreement should be considered depending on whether it is intended that the agreement be legally binding or not.

Agreements to enter into further agreement are called "agreements to agree". Generally such agreements are not legally binding. Whether or not an agreement is an "agreement to agree" depends on the intent of the parties as ultimately determined by the court. The intent of the parties will be determined largely based upon the wording contained in the interim agreement. Wording may be very clear such as "this agreement is not intended to be legally binding". Wording may be, and often is, less clear however.

Sometimes interim agreements do not expressly address the issue of enforceability. An interim agreement may just set out the basic business terms of a deal. Absent specific terms bearing on the issue of enforceability, the court will focus on whether the parties agreed to enough terms to make the agreement certain and enforceable from a practical perspective. The court will not make a contract for the parties. If there is sufficient certainty, and there is no suggestion in the interim agreement that the agreement is subject to further agreement on a material term, the court will generally enforce the agreement.

If the parties do not expressly agree on a certain matter but provide a method for determining the matter, an enforceable agreement may be established. For example, if the parties agree that "market rent" shall be paid and that failing agreement, market rent will be as determined by a certain person, the agreement may be enforceable.

Sometimes interim agreements address the issue of enforceability in indirect ways. For example, an interim agreement may provide that the agreement is "subject to formal agreement". This type of language is suggestive of an "agreement to agree". However, this language alone may not be determinative of the issue.

Another example is in the case of offers to lease. Offers to lease often provide that the "tenant shall enter into the Landlord’s standard form lease". This type of provision has been the subject of much judicial debate. This term in the offer to lease may or may not be enforceable depending on such factors as: whether the Landlord has a standard form lease; whether the terms of the standard from lease were negotiable; whether the tenant had received and reviewed the standard form lease; and whether the standard form lease was consistent with the terms of the offer to lease.

Interim agreements may contain various "subject to" conditions. These types of conditions may relate to the issue of an "agreement to agree" as in the case of "subject to formal agreement". These conditions may not bear on the issue of whether the agreement is enforceable but rather on the issue of whether the condition has been met. In other words, the agreement may be enforceable in accordance with its terms. The question then becomes whether the terms have been fulfilled.

Some interim agreements provide that some terms are immediately enforceable and some are not. For example, the parties may intend that terms about confidentiality and exclusive dealing be enforceable pending further negotiations and agreement on other terms of the business deal.

In summary, parties should be clear in their own mind whether they intend that the interim agreement be binding or not. If they intend the agreement to be binding, they must ensure that there is sufficient certainty of terms and no language in the interim agreement that suggests it is subject to further agreement. If they intend that the agreement not be legally binding, it would be best if they expressly so provide in the interim agreement. Sometimes a party likes to have it both ways. If they are the party seeking to enforce the agreement, they want the interim agreement to have wording that will support enforceability. If they are the party seeking to get out of the agreement, they want the interim agreement to have wording to support this position. In this cat and mouse game there would be considerable risk that a court could find against the party’s position.