Preliminary: Overview, definition, and example
What is preliminary?
Preliminary refers to an initial step, stage, or document in a process that sets the foundation for further action. In contracts and legal agreements, preliminary provisions, negotiations, or agreements outline key terms before a final, binding contract is executed. These preliminary steps help clarify intentions, establish expectations, and guide the development of a formal agreement.
For example, in business negotiations, parties may sign a preliminary agreement, such as a letter of intent (LOI), before drafting a full contract. This document outlines the basic terms of the deal without legally committing either party to finalizing the transaction.
Why is preliminary important?
Preliminary agreements or provisions help parties define key details before committing to a binding contract. This ensures that both sides understand expectations, reducing the risk of misunderstandings later in the process.
Common uses of preliminary steps include:
- Letters of Intent (LOI): Establishing the key terms of a deal before drafting a final contract.
- Memorandums of Understanding (MOU): Informal agreements outlining general principles of cooperation.
- Preliminary negotiations: Discussions before reaching a formal agreement.
For businesses, preliminary agreements can provide clarity and structure while allowing flexibility to refine terms before committing to legally binding obligations.
Understanding preliminary through an example
Imagine two companies exploring a potential merger. Before signing a full merger agreement, they draft a preliminary letter of intent outlining key terms, such as valuation, expected timelines, and due diligence requirements. This document sets the stage for final negotiations without legally binding either party to complete the deal.
In another case, a contractor discusses a large construction project with a real estate developer. Before entering a final contract, they sign a preliminary agreement specifying project scope, estimated costs, and expected timelines. This allows both parties to align expectations before committing to the full agreement.
An example of a preliminary clause
Here’s how a preliminary clause might appear in a contract:
“This Agreement is preliminary in nature and does not create any binding obligations between the Parties except as expressly set forth herein. The Parties acknowledge that further negotiations and approvals are required before entering into a final, legally binding agreement.”
Conclusion
Preliminary agreements and provisions help businesses clarify key terms and expectations before committing to a final contract. They provide flexibility while reducing misunderstandings and legal risks. Businesses should ensure that preliminary documents clearly define what is and isn’t legally binding to avoid disputes down the line.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.