Side letters and collateral contracts: are they enforceable?

Key Points:

Any collateral contract which varies or supplements a principal agreement should be supported by separate consideration to enable that agreement to stand as a contract on its own

Side deals are often used by parties in a range of commercial transactions. They are typically informal arrangements which are used to supplement, vary or clarify the terms of the main (and more formal) transaction documents. The side deal may comprise an oral agreement or it may be documented in a letter or email. For various reasons the parties may not have wanted or been able to incorporate the side deal into the formal transaction documents, but the parties nevertheless usually intend for the side arrangement to be enforceable. The question is whether they are.