When a memorandum of understanding is better than a legal agreement

With the deal nearly done and everyone feeling warm and fuzzy, the last thing you want to do is slap a 10 page legal document on the table and kill the mood.  It would be like getting to second base and your mother dropping in for tea unexpectedly.  So, is there an alternative to a full blown legal agreement which might not kill the mood but secure the deal?

The problem with legal agreements

The main problem with legal agreements is that they can be full of legal jargon. So rather than clarify someone's understanding of what the deal is, they can confuse the heck out of the other person. That leads to suspicion as to what the agreement means and what is being agreed to.

Suspicion leaves the other person with 3 choices:

1. Abandon the deal
2. Consult a lawyer;
3. Take a punt.

Let's face it, none of these options are particularly palatable which is why the old fashioned handshake all of a sudden seems to be the best option.

The handshake is a problem waiting to happen

Whilst a handshake may seem like a good option at this stage because it doesn't kill the mood, you could be opening yourself up to all sorts of trouble if you go along with it. For starters, the other party could renege on the deal and deny there was ever an agreement (after you have ploughed in lots of money). Alternatively, there may be a dispute about what was agreed meaning you end up spending money on lawyers later to sort out the mess. Or, an issue crops up which you hadn't contemplated and then you end up disagreeing on how to move on from there.

Now all these issues could cost you a significant amount of money (certainly more than the cost of getting a legal agreement drawn up - particularly if you use our Secret Library), so maybe getting an agreement is the best option to take. But, that's still leaves us with the problem of killing the mood.

So what do you do?

The answer to this problem could be entering into a Memorandum of Understanding (MOU). Now let's be clear what this document is before we go any further. A MOU is a legally binding contract so don't be fooled into thinking that you can renege on the agreement if things go wrong. Think about a MOU as being the "bare bones" of a full blown legal agreement. It will list the obligations of both parties in easy to understand language and perhaps a couple of other important clauses relating to confidentiality and IP ownership, but that's all. Over and above that, it will contain an agreement by the parties to enter into a full blown legal agreement later on.

The advantage of an MOU

Whilst the MOU is a legally binding agreement, it saves you the cost of getting a full blown legal agreement getting drawn up. After all, there is nothing worse than paying a lawyer loads of money for an agreement only to find the deal falls over only a few months later. At least the MOU allows you to "suck it and see". If the relationship works and is likely to continue only then do you get a full agreement drawn up and incur the cost. Also, an MOU of only a few pages long in plain English is much less likely to kill the mood then a tortuous legal document aimed at covering every possible eventuality - a bit like mothers do.
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