An agreement of intent is necessary to determine the essence of future legal relations and establish certain conditions. Such a document usually states:
- what kind of deal will be concluded in the future;
- conditions that the parties must fulfill before concluding the main contract;
- How long will it take for the parties to conclude the main deal?
First of all, an agreement of intent is needed to pre-fix the terms of a future transaction, while retaining the opportunity to refuse to conclude it. For example, this is convenient if the seller is negotiating with several potential real estate buyers at once.
Also, a written letter of intent can serve as evidence that the parties actually negotiated the deal. In particular, it may be required when recovering damages if your partner suddenly and unjustifiably interrupted negotiations.
Finally, an agreement of intent can help out an entrepreneur if he has disagreements in the execution of an agreement that he concluded with a partner on its basis. Thus, when interpreting a contract, the court may also turn to the agreement of intent in order to establish the actual common will of the parties.
Example of use on "Secret"
“Polish 3D printer manufacturer Zortrax announced in early 2014 that it had signed a contract to supply 5,000 M200 3D printers to American giant Dell. After this, many world media wrote about the then small company, Polish additive technologies began to be considered high-quality, and investors began to massively finance the country’s startups, including Zortrax itself. Subsequently, it turned out that the deal was only an agreement of intent and did not reach completion, and all the success turned out to be a myth.”
(From the news of how 3D printer maker Zortrax's biggest deal turned out to be a scam.)
Highlights of the cooperation agreement
The standard form of an agreement on cooperation and joint activities must include the following:
- The parties act in joint interests without forming a legal entity (Civil Code of the Russian Federation, Article 1041, paragraph 1);
- The agreement must indicate the numbers of the Unified State Register of Individual Entrepreneurs/Unified State Register of Legal Entities and the passport details of the responsible persons, since the document presupposes an agreement between legal entities (Civil Code of the Russian Federation, Article 1041, paragraph 2);
- It is necessary to indicate the amount of investment or contribution to each of the participants;
- Subject of the agreement. These may be services providing legal, technical assistance, etc. (Article 1042, paragraph 1);
- Drawing up an agreement on cooperation and joint activities involves indicating the boundaries of the use of trade secrets by each party.
IMPORTANT! When filling out the form, in the paragraph on the responsibility of the parties and the resolution of disputes, it is necessary to indicate not only the arbitration court, but also the court of general jurisdiction.
Errors in use
Civil law does not provide for an “agreement of intent,” however, in accordance with Art. 429 of the Civil Code of the Russian Federation, the legislation offers a similar tool - a preliminary agreement. Don't confuse these two concepts. The main difference is that the agreement of intent does not entail legal consequences in the event of one of the participants refusing to conclude the main agreement in the future. The preliminary agreement provides that the parties undertake to conclude the main agreement in the future upon signing the preliminary agreement.
Example letter of intent
Agreement of intent
Kemerovo April 11, 2021
We, the undersigned,
Limited Liability Company "Sibiriada", OGRN 114945246813, location: 650015, Russia, Kemerovo region, Kemerovo, st. Zavodskaya, 14, of. 305, represented by director Konstantin Borisovich Sinyukhin, acting on the basis of the Charter, referred to as “Party 1” on the one hand,
Limited Liability Company "SpartaK", OGRN 14568951364, location: 650153, Russia, Kemerovo region, Novokuznetsk, st. Lenin, 105, represented by representative Ivanov Arkady Stepanovich, passport of a citizen of the Russian Federation series 01 14 No. 1946325, issued by the Department of Internal Affairs of the city of Novokuznetsk, Kemerovo region on June 3, 2005, unit code 425-315, registration address: Kemerovo region, Novokuznetsk city, st. . Lazurnaya, 105, apt. 12, acting on the basis of power of attorney No. 5 dated February 27, 2018, referred to as “Party 2” on the other hand
and collectively referred to as the “Parties”, have entered into this agreement as follows:
- The Parties are guided on the merits of this Agreement by the current legislation of the Russian Federation, directly or indirectly regulating the relations of the Parties, the constituent documents of the Parties, as well as regulations that may be adopted by the competent authorities during the period of validity of this Agreement.
- The parties agreed that their intentions and interests, production and financial potential correspond to the establishment of long-term and mutually beneficial cooperation in the field of land lease 42:31:38923:16, 42:31:38923:17, 42:31:38923:20, located near the village Tashtagol, Novokuznetsk region, Kemerovo region.
- Party 2, from the moment of signing this Agreement, undertakes to prepare documentation and perform the following actions at its own expense:
- prepare a boundary plan for each plot of land,
— carry out cadastral registration of each land plot
— conclude land lease agreements with the authorized body with the right to transfer rights and obligations to third parties.
- Party 1 undertakes to conclude land sublease agreements with Party 2 within 10 working days after Party 2 signs the main lease agreements with the authorized body. The term, price, and obligations of the Parties are established by the sublease agreement by agreement.
- The parties undertake not to interfere with each other's operational activities.
- This Agreement comes into force upon signing and is valid until October 1, 2021. Upon expiration of the term, the Agreement shall cease to be valid and shall not bind the Parties.
- This Agreement is drawn up in two copies having equal legal force, one copy for each of the Parties.
- Details of the parties:
Director of Sibiriada LLC K.B. Sinyukhin
Representative of SpartaK LLC A.S. Ivanov
How to draw up a letter of intent, sample
Drawing up an agreement of intent to enter into a main agreement is largely unregulated. In particular, as for most other agreements, there is no legally established mandatory form.
At the same time, a number of mandatory requirements apply to preliminary agreements - both those relating to the conclusion of agreements in general, and those specific exclusively to preliminary relations. In general, the letter of intent must contain the following points:
Setting data of the parties. These include the full name of individuals, or the name of a legal entity along with the surname and initials of the official signing it.- A brief description of the future agreement that will be concluded by the parties subsequently. At the same time, it must be clearly indicated what type of agreement there will be, regarding the nature of the transaction it will be concluded, as well as a number of other nuances. Unclear wording can lead to the recognition of the contract as void or to subsequent controversial situations.
- Time required for signing the main agreement. This clause is not mandatory - if the terms for concluding the main contract are not specified, they are considered to be no more than a year from the date of conclusion of the preliminary document.
- Responsibility of the parties and enforcement of the contract. The text of the agreement of intent may consider the conditions under which the parties risk being held liable to each other, the nature of such liability, and the obligation to pay penalties or compensation. In addition, the preliminary agreement may imply an advance payment or some other security.
- Signatures of the parties and seals, if the agreement is concluded with the participation of legal entities.
Important fact
Preliminary agreements must be concluded in the form in which the main agreement will be concluded. That is, if the preliminary agreement is drawn up in simple written form, then notarization of the main agreement will be considered unacceptable. Similar requirements apply in the reverse situation.
Agreements of intent for certain types of transactions
The requirements of the Civil Code of the Russian Federation for preliminary agreements are uniform, they were mentioned above, therefore, in relation to some specific transactions, other conditions depend on the agreement of the parties. Such agreements are born as a result of meetings, approvals, drawing up preliminary protocols and verbal commitments.
Agreement of intent for a construction contract
This transaction involves the implementation of a set of works for the construction of an object or a certain type of work. When concluding an agreement of intent for a construction contract, you will need to indicate the name of the object, its address, the start and end dates of work, and the scope of work.
In the main agreement, the parties can change the conditions, detail them or establish new ones.
Intentions to enter into a collateral obligation
A pledge agreement is understood as the transfer of some property from the debtor to the creditor in order to ensure the fulfillment of an obligation. The most common cases of executing a collateral agreement are when obtaining a loan or loan. As a rule, they are concluded simultaneously, but in some situations, it is possible to sign an agreement with a delay, in connection with which an agreement of intent can be drawn up.
This is possible if the subject of pledge, being real estate, is not free from the rights of third parties, for example, it is burdened with another obligation that is practically fulfilled and it is necessary to go through the removal procedure by submitting an application to Rosreestr.
By concluding a preliminary agreement, the future mortgagor undertakes to pledge property in the form of real estate as collateral for some obligation, which must be described in detail. You will need to indicate all the characteristics and approximate cost; failure to comply with these requirements may result in the invalidity of the agreement.
Agreement of intent to conduct research work on soil study
Soil research is carried out in anticipation of the construction of any facility, be it a residential building or an industrial complex. Without the results of soil research work, it is impossible to design or calculate the estimated cost of construction, therefore this type of service is the most initial and important stage of the upcoming activities for the construction of a real estate property.
Studying the soil allows you to accurately calculate the future foundation and give an idea of how the earth will react to rain, melting snow and other natural influences.
Due to high competition, the interested party in carrying out soil research work is the contractor; it is important for him to obtain a guarantee that the contract will be concluded with him, therefore it is necessary to approach the agreement of intent very responsibly.
In the preliminary contract for soil research work, you will need to describe the types and volume of the order, the location of the future facility, as well as the period for its completion.
Since such soil research work is seasonal in nature, which covers mainly the warm season, intentions to conclude an agreement can be expressed in advance, for example, in winter, and the transaction itself can be concluded in the spring.
Agreement of intent to provide training services
These types of agreements are concluded with an individual teacher or educational institution; their essence is to provide a range of services for training in a particular specialty, consulting or tutoring.
The agreement of intent must indicate the type of service, volume and period of training.
Despite the fact that the legislation does not prohibit concluding agreements of intent, it does not contain such a legal concept, therefore, in order to protect the interests of the parties to the transaction, it is necessary to comply with the rules dictated by the Civil Code of the Russian Federation, so as not to incur losses in the future from an unreasonable expectation that the counterparty will sign the required agreement.
Features of the agreement
An agreement on cooperation and joint activities may also relate to investment activities; in these cases, they are guided by the Federal Law of November 28, 2011 N 335-FZ (as amended on July 21, 2014) “On Investment Partnerships.” This document assumes a number of specific features, such as:
- The parties do not have the right to attract new investors and place advertisements for investment activities (Federal Law of November 28, 2011 N 335-FZ. P. 7);
- The agreement must indicate joint property;
IMPORTANT: The contract must indicate the share and amount of profit received as a result of the agreement. Typically, profit is calculated based on the contribution of each participant. (Civil Code Article 1047, Chapter 55, paragraph 1)
The agreement must indicate the basis for termination of the agreement. The law provides for the following reasons for termination of a document: liquidation of a legal entity due to bankruptcy or for any other reason, expiration of the contract’s statute of limitations.
In what cases is it necessary
An agreement of intent is a preliminary stage between participants in legal relations who plan to sign a substantive agreement.
At its core, this is an expression of the will of the parties to consolidate cooperation in the future. Moreover, participants will need to provide as much detail as possible when the main transaction will be concluded, as well as indicate its subject.
Read also: Corporate property tax in 2021
If the parties miss the condition on the timing of signing the transaction, then the main agreement will be considered concluded after the expiration of a one-year period from the date of signing the agreement of intent.
Important! Ignoring the requirement to indicate essential conditions may lead to the recognition of the Agreement as not concluded, which, as a result, releases the parties from fulfilling previously reached agreements.
Obligations of the parties
The subject of the Agreement is the obligation of the parties to conclude the main agreement upon the expiration of the agreed period or upon the occurrence of an agreed upon event.
As in other types of civil transactions, the parties assume certain responsibilities and acquire rights. The key obligation under the letter of intent is that the parties fulfill all the conditions necessary to conclude the main agreement.
Participants in legal relations can specify in the contract any conditions that do not contradict current legislation and also do not infringe on the interests and rights of the parties.
Often, an agreement of intent occurs when concluding the following types of transactions:
- related to the purchase and sale of real estate and movable property;
- barter agreements;
- credit transactions and loans;
- contracts the subject of which is the transportation, storage or rental of goods and materials.
Important! In order for the agreement of intent to have legal force and guarantee the protection of the rights and interests of the parties, notarization of the document is a prerequisite.
What to choose - a letter or a preliminary agreement?
A letter of guarantee is one of the elements of business document flow. As a rule, it is used in relations between legal entities or individual entrepreneurs, but the law does not prohibit its use by ordinary citizens. itself can be issued using two documents:
- letter of guarantee;
- agreement of intent (aka preliminary agreement).
The difference between them is as follows:
- The letter of guarantee is a one-sided document. In it, the sender only indicates that he intends to take some legally significant actions (in particular, to conclude a rental agreement no later than a specific date or the occurrence of a specific event). Actions can be performed both in relation to the addressee and to another person. For example, letters of guarantee for rent are a common requirement when registering legal entities. They are submitted to the tax office and in them the owner or tenant guarantees to the registration authority that the premises indicated as the legal address will be leased or subleased.
- A letter of intent or preliminary agreement is always bilateral. In it, the parties guarantee each other that no later than a certain period of time they will sign the main document and enter into specific legal relations with each other (in this case, a lease).
On a note. Such documents can be used in commercial practice if, for some reason, concluding a main agreement is currently impossible.
A letter of intent may be used in various situations. For example, one of the organizations intends to acquire ownership of premises and is going to give a guarantee to the counterparty that it will enter into a lease agreement with him. Signing the main document is not yet possible, but the letter of intent guarantees that it will be signed in the future. It can also be concluded if the building in which the premises will be provided under the arena agreement has not yet been put into operation.
Subject of the contract and confidentiality
The text of the agreement on cooperation and joint activities must indicate the subject of the agreement. In particular, these may be those activities that the parties decided to carry out jointly. It could be:
- Provision of services;
- Any help;
- Technical support;
- Marketing and more.
When concluding an agreement, you first need to pay close attention to the block with confidential information. It may include certain unique technologies and know-how that are used by one of the parties. The text of the document must list the areas that fall under the category of confidential information and provide for penalties for its disclosure. When concluding a joint activity agreement, you should not forget about possible tax obligations, because As a result of the joint efforts of the parties, they receive profit, which is subject to taxation. In the text of the document, indicate the procedure for calculating and paying taxes.
Advantages and disadvantages
The following advantages stand out:
- the parties stipulate in advance the procedure and rules for the upcoming cooperation;
- the law provides the right to independently establish essential conditions;
- The result of the agreement is the conclusion of a contract.
Disadvantages include:
- mandatory notarization to give the document legal force;
- the difficulty of bringing to responsibility in case of refusal to fulfill obligations;
- the likelihood of receiving damages or property damage if one of the parties incorrectly interpreted the legal nature of the document being signed and subsequently refused to fulfill its obligations.
