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A memorandum of understanding (MOU) is a written agreement between parties that expresses their aligned will. This type of document also details the intent of a common line of action. A memorandum of understanding can be bilateral (between two parties) or multilateral (between more than two parties).
You can think of a memorandum of understanding as a way for all parties to express that they agree to proceed with their mutual goals. An MOU indicates that the parties have reached an understanding and are ready to move forward. Though an MOU is not legally binding, it serves as a serious declaration that a binding contract is imminent, and it may include some binding provisions if the parties choose to do so.
On the scale of formal agreements, a memorandum of understanding is less formal than a contract but more formal than a handshake. A memorandum of understanding may sound a lot like a contract, but there are significant differences. For example, a contract is a private written agreement, and unlike an MOU, it is legally binding and enforceable by a judge.
The memorandum of understanding document is often found in international relations, used as a companion or alternative to a formal treaty. However, it is a common device in business negotiations as well.
You may see this type of document referred to by a few different names. Common names for a memorandum of understanding include:
Here are a few common reasons for using an MOU:
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Although an MOU is a formal document, it is typically not legally binding. Instead, the MOU is used to demonstrate each party's willingness to take whatever action is necessary to move a contract forward. The memorandum of understanding also defines the purposes and the scope of negotiations. In other words, the MOU document acts as the foundation for negotiations. These types of agreements are used frequently in:
A memorandum of understanding is the same as a letter of intent in United States law. MOUs are basically indistinguishable under the law from letters of intent and memoranda of agreement. These documents all discuss a mutually beneficial goal and the desire for the involved parties to complete this stated goal.
Though MOUs themselves are not legally binding documents, they can include a clause that becomes legally binding. In those cases, a party that violates that clause can be held liable.
Key elements that may render a memorandum of understanding to be legally binding include:
Though not limited to these details, a memorandum of understanding should include the following information:
The MOU should also include certain key facts, including:
Some MOUs also include contact information for the parties involved as well as potential dates for performance reviews.
Before preparing the document, the parties who are creating a memorandum of understanding must reach an understanding that all parties accept. Everyone involved should have clear information about the important stances each party holds. This way, the parties can create a complete and effective MOU document.
To create a memorandum of understanding, both (or all) parties typically first prepare their own MOU documents that discuss:
A memorandum of understanding serves to demonstrate each party's initial position before entering into negotiations.
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A memorandum of understanding comes with both benefits and drawbacks for the parties creating the agreement.
Advantages of an MOU include:
The major disadvantage of a memorandum of understanding is that it is not legally binding. As a result, an MOU makes it very easy for any involved party to either exit the agreement or not meet the outlined requirements since these actions don't typically have consequences.
Although a memorandum of understanding is not a legally enforceable document, it is consistently viewed as a significant step. This is because drafting an effective MOU document requires all parties to put forth time and effort. The parties creating a memorandum of understanding must come to a mutual understanding, learn about what is most important to the others involved, and agree to move forward.
MOUs may come into play in a few sectors, including:
When signing a memorandum of understanding, it is important to create a clear document that all parties can agree to and understand. That's why it's so important to work with an experienced lawyer who can make sure that your MOU clearly states your goals, intentions, and expectations.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
Scott graduated from Cardozo Law School and also has an English degree from Penn. His practice focuses on business law and contracts, with an emphasis on commercial transactions and negotiations, document drafting and review, employment, business formation, e-commerce, technology, healthcare, privacy, data security and compliance. While he's worked with large, established companies, he particularly enjoys collaborating with startups. Prior to starting his own practice in 2011, Scott worked in-house for over 5 years with businesses large and small. He also handles real estate leases, website and app Terms of Service and privacy policies, and pre- and post-nup agreements.
Transactional and Employment Attorney and Small Business Owner. I do inside counsel work from the outside. I demystify the law for my clients.
My legal practice is focused on business transactions like general corporate matters, fundraising, technology contract negotiation, blockchain, crypto or token analysis, and others. I hope to be a good asset to you and looking forward to finding out how I can be of help!
Josh Bernstein has been serving real estate and corporate transactional clients since 2002. His experience is varied, and he enjoys working on and puzzling out novel and complex corporate and real estate matters. Josh’s experience includes, among other things, the following: representation of public companies in connection with SEC reporting and compliance work (proxies, 10-K’s; 10-Q’s; 8-K’s, etc.); representation of public and private company securities issuances (including private placements, and other similar offerings); assistance in structuring and drafting joint ventures, both for investors and operating partners, and including both real estate and corporate ventures; handling public and private company mergers and acquisitions; and asset sales and dispositions; assisting clients, big and small, with real estate acquisitions, sales and financings; managing large-scale and multi-state real estate portfolio acquisitions, dispositions and financings; complex condominium creation, structuring and governance work, including: commercial condominiums, use of condominiums as a land planning tool, wholesale condominium property acquisitions and dispositions, and rehabilitating failed or faulty condominium legal structures to make ready for sale; development of restrictive covenants and owners’ association documents for master-planned communities; compliance with federal statutes governing real estate sale and development (including, without limitation, the Interstate Land Sales Full Disclosure Act, the Housing for Older Persons Act, and the Americans with Disabilities Act); representation of real estate lenders, for both improved and unimproved property, and including numerous construction financings secured by real estate; assistance with commercial leasing; from both the landlord and tenant side, and including condominium leasing; training residential home and condominium sales staff for compliance with applicable local and federal law; and workouts of all kinds. When he’s not busy lawyering, Josh may be found watching 80’s commercials, flying a single-engine plane, playing poker, or trying to be a good dad.
