What Is a Memorandum of Understanding? A Guide to MoUs

A memorandum of understanding is a written agreement signed by two or more parties outlining basic terms for a more binding contract to come. An MoU is not a legally enforceable document, but it usually precedes a formal contract or treaty during negotiations. MoUs function as a pre-agreement that outlines the parties in the agreement, the terms of the agreement, and the expected responsibilities for both parties. Memorandums of understanding are used by government agencies in the negotiation of treaties in international relations or by businesses.

Two parties involved in a contract negotiation will outline the terms and parties involved in any given agreement in an MoU. The MoU records that the parties have come to a mutual understanding on a common line of action with the intent that further negotiations and discussions will follow. The terms of the MoU are written down in a formal document and signed by all parties. An MoU is nearly the same as a letter of intent (LOI), except an LOI only deals with two parties.

It’s important to note that MoUs are not enforceable by law, but certain language within the document can make them more legitimate. For instance, making or accepting an offer or exchanging money make the agreement technically legal, which may be subject to a judge’s ruling in the event of an issue between the parties.

MoUs can be advantageous during contract negotiations for a number of reasons, including the following.

1. 1. They allow you to negotiate terms. With an MoU, you can outline the basic terms with the intent on returning to talks later and further fleshing out the details. This can make it easier to form the legal contract later, reducing the addition of addendums or amendments to a final contract.
2. 2. They’re easy to leave. If at any point either party disagrees with the terms or wants to withdraw, they are able to without severe monetary or legal consequences because MoUs are not legally binding.
3. 3. They provide a paper trail. As written agreements, MoUs provide all parties with a history of discussed and agreed-upon terms.

Despite their uses, MoUs have a few potential disadvantages.

1. 1. They’re not legally enforceable. MoUs are non-binding agreements, which means neither side is liable to suffer any consequences for not following through on the terms. Unlike a memorandum of agreement (MoA), which is a type of agreement that either party can challenge in court, most MoUs are not legal documents that are likely to be enforced by the court.
2. 2. They can be confusing. Depending on how they’re written, some MoUs can technically be enforced by a judge if the terms stipulate so. Many MoUs include disclaimers stating that the terms of the agreement are not meant to be contractually binding, and should not be interpreted as such.
3. 3. They add to the negotiation time. Negotiating the terms in an MoU may add to the amount of time it takes to finalize a contract. There is also likely to be a good degree of back and forth as both parties negotiate the terms of a contract. This may present difficulties if you have a limited amount of time.

Even if they are not legally enforceable, MoUs need to be in the form of a written agreement to create a paper trail proving the willingness of all parties involved. Here is a broad overview of what you should include in an MoU.

1. 1. Provide relevant contact information. Both parties should include their full names and relevant contact information in any memorandum of understanding.
2. 2. List the major points of the agreement. Your MoU should outline the scope of what your future contract will entail, as well as any relevant details of the potential arrangement, and what each party is responsible for to fulfill the given terms.
3. 3. Include your start and end dates. The MoU should also include the time frame in which this agreement should be executed. Include the official start date of the agreement, as well as when it ends. The MoU should also detail how parties may end the arrangement themselves should their terms not be satisfied.
4. 4. Provide signatures from all named signatories. MoUs must be signed by all the parties named in the document.

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