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An ‘agreement to agree’ is likely to fall under the definition of a non-binding contract. Non-binding contracts may not have the same legal effect as binding contracts, however they can still be extremely useful – especially in today’s fast‐paced business environment in 2025.
What Is The Difference Between A Non-Binding and Binding Contract?
An agreement will either be binding or non-binding. The key difference between the two lies in their enforceability. While a binding agreement can be enforced by law, and a breach may lead to penalties or legal sanctions, a non-binding agreement is not designed to trigger legal consequences if a party fails to follow through.
A binding contract creates a legal obligation and offers a level of certainty that can be enforced in the courts. By contrast, a non-binding agreement serves as a framework to outline discussions and agreed-upon intentions while allowing flexibility in areas where the parties have not yet reached a final decision. Many business owners use non-binding agreements as valuable stepping stones before finalising a formal contract.
What Is A Contract?
A contract must meet specific criteria to be considered legally binding. In essence, it should include a clear proposal with mutually agreed upon terms that all parties understand, and each party must have the legal capacity to enter into the agreement. In 2025, digital and electronic contracts have become the norm, with many agreements being concluded online. For additional clarity on contract requirements, you might also explore our guide on legal requirements for starting a business.
Put simply, a contract is an agreement – but if it is not legally binding, you cannot expect legal enforcement or consequences.
Consent must be given freely, and every party must have the legal capacity (both in terms of age and mental state) to sign. To summarise, a contract must contain all of the following elements:
- Offer and acceptance
- Intention to be legally bound
- Consideration
- Free consent
- Legal capacity
If any of these criteria are missing, a contract may be deemed invalid or non-binding. Understanding what makes a contract valid is essential before determining whether an agreement is binding or not.
When Is It Non-Binding?
A contract will not be binding for two main reasons:
- It does not comply with all the essential factors needed to be a binding contract.
- The agreement has been expressly designed to be non-binding, with the parties clearly stating that the terms are only for discussion or preliminary planning.
It is quite common for businesses to draft non-binding agreements during the negotiation phase – for example, in Heads Of Agreement or Memoranda of Understanding (MoU) – which allows all parties to confirm their intentions while leaving room for future adjustments.
Unfair Contract Terms
Unfair contract terms can also render an agreement non-binding. A contract cannot be legally binding if it contains clauses that cause harm or are significantly one-sided. The Australian Competition and Consumer Commission (ACCC) continues to enforce guidelines against unfair contract terms. These terms typically include:
- A clause that permits one party to underperform or completely avoid their obligations.
- A provision that only allows one party the right to terminate the contract.
- Penalties for breaches that are imposed solely on one party.
- A clause that gives one party the unilateral right to change the terms of the agreement without offering similar rights to the other.
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Example Leo contracts Taylor and her band to play live music at his restaurant’s Friday night event. Their discussion over text messages is treated as their written agreement. Taylor agrees to play for three hours, with the parties discussing song choices and break times. However, when the topic of payment arises, Leo offers only a free meal, arguing that “the exposure will be great for them.” Despite Taylor’s insistence on appropriate payment, Leo refuses to negotiate further. Fortunately, their agreement was not binding since adequate consideration was not provided – thereby constituting an unfair contract term that is not enforceable. |
Initialling A Document
Initialling a document is another method of showing that you agree with the terms set out, prior to formally signing the full document. An initial is not the same as a full signature – it is a personal mark placed on key pages of an agreement to indicate that the signee has read and understood the content.
Using initials helps ensure that specific pages cannot be altered once initialled. This practice is common for both binding and non-binding agreements, and in the case of non-binding documents prepared before a final agreement is signed, it can be especially useful should any disputes arise later. For more details on document security, see our Contract Review and Redraft service.
E-Signatures
If you’re looking for an e-signature tool for your business, you’ve come to the right place. In response to client feedback and emerging digital standards in 2025, we developed our very own E-Signature Tool available as part of our Sprintlaw Membership. This tool simplifies the process of signing documents electronically while maintaining legal validity.
So, what does this mean for you?
Using our E-Signature Tool enables you to keep all your key documents in our secure online portal. You can send documents off to your counterparties, track when they were opened and signed, and maintain copies of final, signed agreements. This digital process not only saves time but also adds another layer of security and auditability to your legal processes. Learn more about our online solutions on our Online Business Lawyers page.
Essentially, our tool helps your business stay on top of your legals by building an efficient way to send and sign documents electronically, ensuring your agreements remain secure and compliant in today’s digital landscape.
What Are Some Common Non-Binding Agreements?
A non-binding agreement is an excellent way to set out the basic terms of your contractual relationship before committing to a formal, enforceable contract. Such agreements are widely used in early discussions to ensure that all relevant parties are aligned on key points, minimising miscommunications before the deal becomes official.
Common examples include Heads Of Agreement or a Memorandum of Understanding (MoU). Startups and emerging businesses also often use a Founders Term Sheet to outline the key financial and operational terms for investor consideration. As digital negotiation tools continue to evolve in 2025, these non-binding agreements help establish initial trust and clarity, paving the way for binding contracts in the future.
It is important to remember that, although non-binding agreements are not enforceable in a court of law, they provide a foundation of understanding. For further guidance on whether a non-binding agreement is right for you, check out our article on Legal Advice for Your Startup which offers insights into choosing the best agreement structure for your needs.
Need Help?
A non-binding agreement may not be legally enforceable; however, that does not diminish its value. If you would like a non-binding agreement drafted or need advice on whether a binding contract might be more appropriate for your situation, get in touch with us today. Our lawyers specialise in drafting both binding and non-binding agreements that are tailored to meet your unique business needs.
If you would like a consultation on your legal options moving forward, you can reach us at 1800 730 617 or email us at team@sprintlaw.com.au for a free, no-obligations chat. Our expert team is here to help your business navigate the changing legal landscape in 2025.
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