précontract

A précontract, also known as a preliminary contract or a letter of intent in some jurisdictions, is an agreement entered into by parties before they finalize a definitive contract. Its primary purpose is to outline the key terms and conditions that will form the basis of the future, more comprehensive agreement. While not always legally binding in its entirety, a précontract can create certain obligations, such as a duty to negotiate in good faith or to refrain from negotiating with third parties.

The specific legal effect of a précontract varies significantly depending on the applicable law and the wording of the agreement itself. Some précontracts are considered mere expressions of intent, while others may be enforceable as a binding agreement to enter into a future contract, especially if all essential terms have been settled. Common areas where précontracts are used include real estate transactions, mergers and acquisitions, and significant commercial agreements. They serve to provide a framework for further negotiation and to ensure that both parties are aligned on the fundamental aspects of the deal before investing further time and resources. It is crucial for parties to clearly define which clauses, if any, are intended to be legally binding.