Are Agreements to Agree Enforceable in Australia?

In business, it’s common to shake hands on the broad strokes and plan to “sort the details later.” You might call it an agreement in principle, a term sheet, a heads of agreement, or simply an agreement to agree.

But will it hold up if something goes wrong? And how do you avoid ending up with a document that’s too vague to enforce?

In this guide, we’ll explain what an “agreement to agree” is, when it’s binding (and when it isn’t), and how to write your preliminary documents so they do exactly what you intend-nothing more, nothing less.

What Is An “Agreement To Agree”?

An “agreement to agree” is a document or understanding where both sides commit to finalise a contract later. Typically, the parties set out the key commercial points but leave important terms to be negotiated in future.

These can take many forms:

• A short email confirming “we’re on board subject to final terms”
• A one-page term sheet outlining price, scope and timeline
• A detailed document with headings like price, deliverables, IP, termination-but with some items marked “to be agreed”

Whether it’s binding comes down to contract basics-was there offer, acceptance, consideration and an intention to create legal relations? If any of these are missing, you may not have a contract at all. If you need a quick refresher on the fundamentals, see how offer and acceptance works in Australian contract law.

Are Agreements To Agree Legally Enforceable?

Generally, Australian courts won’t enforce an “agreement to agree” if the essential terms are uncertain or left for future negotiation. The law expects enough certainty so a court can work out what each party promised to do.

Here are common reasons a preliminary agreement can fail:

• Uncertainty: Key terms like price, scope, timing or payment are missing or unclear.
• Incomplete: The document says a formal contract will be negotiated later, but doesn’t say what happens if you can’t agree.
• No intention to be bound: The parties treated the document as a stepping stone-not the final deal.

However, a preliminary agreement can still be binding if it has enough certainty and the parties intended to be bound now. Courts look at the language used, how complete the terms are, the context of negotiations, and your conduct after signing.

Some clauses may be binding even if the commercial terms are not. Typical examples are confidentiality, exclusivity, good faith negotiation, and costs. If you want parts of your document to be enforceable now, you can clearly label those sections as “binding” and others as “non-binding.”

If you’re worried a draft might miss something crucial, it helps to sense-check it against what would make a contract too uncertain. This short guide covers what makes a contract invalid, including uncertainty and incompleteness.

Term Sheets, MoUs And Heads Of Agreement: What’s The Difference?

Businesses use different labels for early-stage documents. The title helps, but the real question is what the document says and what you intend it to do.

Term Sheet

A term sheet typically lists key commercial terms in a concise, bullet-point form. It often states the parties plan to negotiate a full contract later. Term sheets can be binding or non-binding depending on the wording.

Memorandum Of Understanding (MoU)

An MoU records a common understanding-what you’re hoping to do together and the broad parameters. It’s often used where parties want to show alignment without committing to a full contract yet. Whether an MoU is binding turns on drafting and context. For a deeper comparison, this guide breaks down MoU vs Contract and what to watch for.

Heads Of Agreement

Heads of Agreement usually sit between a term sheet and a full contract in terms of detail. They set out the deal structure at a high level and can earmark specific clauses (like confidentiality and exclusivity) as binding. If you’re after a robust template tailored to your situation, a lawyer can prepare a Heads of Agreement that makes your intention crystal clear.

Emails And Verbal “In-Principle” Agreements

Even an email chain or a conversation can create enforceable obligations if the content hits the legal requirements. But informality increases the risk of ambiguity. If you’ve relied on a handshake deal before, it’s worth understanding when verbal agreements can bind you-and when they won’t.

How To Make Your Preliminary Agreement Binding (Or Not) On Purpose

The safest approach is to be explicit. If you want to be bound now, say so and make sure the essential terms are complete. If you don’t, label the commercial parts as “non-binding” and only mark specific clauses as binding. Below are practical drafting tips.

1) Decide Which Clauses Are Binding Now

Commonly binding clauses include:

• Confidentiality
• Exclusivity/no-shop (for a defined period)
• Costs of negotiation
• Governing law and jurisdiction
• Good faith negotiation obligations

Mark them as “Binding Clauses” and keep them precise (for example, define exactly how long exclusivity lasts and what counts as a breach).

2) Keep Essential Commercial Terms Certain

If you intend the commercial terms to be binding now, include the essentials in clear language:

• Scope of goods or services (what’s included and excluded)
• Price and how/when it’s calculated
• Payment terms (timing, method, late fees)
• Deliverables and milestones
• Start, end and renewal options

Avoid “to be agreed” for key terms. If there’s genuine uncertainty (for example, a price that depends on future factors), build a mechanism-like an agreed formula or independent valuation-so a court could still determine the outcome if needed.

3) State Your Intention Clearly

Use a “Binding Nature” clause to spell it out. For example:

• “The parties intend to be legally bound by Clauses X-Y” (binding parts)
• “The remaining terms are non-binding and subject to execution of a formal agreement” (non-binding parts)

Follow that with a process and timeframe for negotiating the final contract. You can also say what happens if you don’t reach agreement (for example, the non-binding parts lapse, but confidentiality and costs remain binding).

4) Include A Path To The Final Contract

Outline milestones: who will draft, target dates, and any conditions like board approvals or due diligence. If you need to tweak terms later, it helps to know how making amendments to contracts should work and when a variation needs fresh consideration or a deed.

5) Don’t Rely On Quotes Or “Intent” Alone

Quotations, brochures and proposals are often treated as invitations to negotiate, not offers. That means there may be no deal until an offer is accepted on clear terms. It’s useful to understand the distinction between an offer and an invitation to negotiate-see invitation to treat vs offer in plain English.

Negotiation Tips To Protect Your Position

Even early-stage documents can shift leverage. These practical tips help you control risk while keeping momentum.

Prioritise Your Non-Negotiables

List three or four deal-breakers (price floor/ceiling, IP ownership, termination rights, liability caps). If those aren’t agreed, keep the commercial parts non-binding until they are.

Use Conditional Language Where Needed

If you must move quickly, add conditions precedent like board approval, due diligence, or supplier confirmation. This keeps you protected if assumptions change.

Be Specific About IP And Confidential Information

Clarify who owns pre-existing IP and who will own anything created during the relationship. Keep confidentiality terms tight and practical.

Timebox Exclusivity

Exclusivity can be valuable, but it shouldn’t drag on. Set a short window tied to negotiation milestones. If timelines slip, agree an extension in writing. When you do need to formalise changes, follow the basics for legally varying a contract.

Give Yourself A Clean Exit

For non-binding sections, include a simple walk-away right if final terms can’t be agreed by a set date. Make it clear that binding clauses (like confidentiality and costs) survive termination.

Document The Process

Keep track of drafts, comments and emails. If a dispute arises, the paper trail helps show intention and the state of negotiations.

When Should You Use A Full Contract Instead?

Use a full contract when you are ready to be bound on all essentials, or where risk exposure is significant from day one. Examples include supplying mission-critical services, licensing IP, or agreeing to high-value orders.

For substantial deals, you can still start with a short-form document for speed-just ensure it’s consistent with the final version. If your relationship becomes long-term or complex, consider moving from a preliminary document to a master services agreement with schedules and statements of work, rather than relying on emails and evolving term sheets.

And if your preliminary document is already comprehensive, it may be better to convert it into a full agreement rather than keep negotiating in parallel.

Avoiding Pitfalls We See With Agreements To Agree

Across hundreds of matters, small businesses run into similar issues with preliminary documents. Being aware of these helps you stay on the front foot.

• Binding by accident: The language suggests you’re already bound, even though you meant “subject to contract.”
• Unclear price mechanics: You agree on a “ballpark” price without a formula or method if assumptions change.
• IP ownership gaps: Each party assumes they own new materials; no one wrote it down.
• Exclusivity drift: A 14‑day exclusive window casually extends for months because there’s no stop date.
• Conflicting drafts: A signed term sheet clashes with the later full contract because no one reconciled the versions.

If you’re unsure whether your early document is doing what you think it’s doing, a quick review can prevent a costly misunderstanding. If a term sheet needs to evolve into a contract, a lawyer can help with contract drafting or a targeted contract review so you can sign with confidence.

Frequently Asked Questions

Is A “Subject To Contract” Clause Enough?

It helps, but it’s not bulletproof. Courts look at the whole picture-language, completeness of terms, conduct and context. Back up “subject to contract” with clear binding/non-binding labels and a process to reach the final agreement.

Can An Agreement To Negotiate In Good Faith Be Enforced?

These clauses can be enforceable if they’re clear and specific, but they won’t force you to sign a deal you don’t want. They generally require you to participate honestly and reasonably in the process you outlined together.

Can We Start Work Under A Heads Of Agreement?

Yes-but only if you’ve locked down the essential terms that relate to the work you’re starting (scope, price, timelines, risk). If you begin on vague terms, you increase the risk of disputes and non-payment. Consider moving to a short-form contract first.

What If We Agree On Price Later?

If price is essential and genuinely left to “agree later,” the document is likely too uncertain to enforce. Instead, use a pricing mechanism (e.g. rate card, indexation, third-party valuation, or an agreed formula) so the price can be objectively determined.

Key Takeaways

• An “agreement to agree” is risky if essential terms are uncertain or left to future negotiation.
• Preliminary documents can still be binding if they’re clear, complete and show an intention to be bound now.
• Label binding and non-binding clauses, and include a practical process to reach the final contract.
• Use mechanisms (not “to be agreed”) for essentials like price, scope, timelines and risk allocation.
• Term sheets, MoUs and Heads of Agreement are useful tools-what matters is the wording and your intention.
• If you’re moving fast, protect yourself with confidentiality, timeboxed exclusivity, conditions precedent and a clean exit.

If you’d like a consultation on drafting or reviewing a preliminary agreement (or turning it into a robust contract), you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.