Side Letter Of Agreement

The last and probably the most important criterion is the consideration (a form of payment). The counterparty does not need to take a monetary form and may simply be a mutual advantage (or disadvantage). As a rule, an accessory letter is used to clarify the details of the contract and, therefore, the need for consideration is satisfied, since there is an advantage for both parties. In the absence of performance or payment, a subsidiary letter can only become legally binding if it is executed as an instrument, which implies, inter alia, that it must indicate that the subsidiary letter is an act and that the signatures of the parties must be signed. Like any contract on the merits, a subsidiary letter presupposes in particular a legitimate object and a non-fraudulent intention of the parties. Therefore, a side letter should not intend to deceive third parties or circumvent binding legal provisions. Fraudulent accessory letters can lead tax authorities to convict companies. In 2003, the Dutch authorities conducted an investigation of Ahold, including examining some of its secondary letters allowing joint ventures to be illegally consolidated in order to improve their accounts. Initially, a settlement was concluded with the Dutch authorities and the company was fined €8 million. Ahold was later convicted of fraud by the SEC. Accessory letters are often used to confirm additional details that are not known at the time of completion of the main documents or to clarify certain points.

Third, by changing the terms of the main contract, the secondary letter may change the characterization of the entire agreement. For example, in France, some management leasing contracts are concluded by the parties to obtain the effective qualification of a contract, that is to say. The purchase of the company, in the secondary letter. M&A and participation of works councils. In the Netherlands, it seems appropriate to sign a correspondence agreement to which all transactional documents (including BSG) will be attached. The context is that the Dutch works council law (de facto) prohibits the parties from concluding a binding agreement before applying to the competent works council, even if the SPA depends on obtaining such a deliberation. It is obvious that, in many cases, consultation of the works council is not desirable, given the dynamics of the transaction and the turbulence that could trigger the involvement of the works council. .

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