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Back to "Community & Associations Newsletter - June 2017"


Misunderstood: Understanding Memoranda of Understanding

A Memorandum of Understanding (MOU) is generally used to record the basic terms of a transaction, in advance and in anticipation of more detailed and legally binding terms and conditions.

A MOU is not usually legally binding, however, it can be binding if it satisfies the six elements of a contract, set out below:

  1. Offer and acceptance – a contract is formed when an offer by one party is accepted by the other party;
  2. Intention to create legal relations – the parties to the agreement must intend to enter into a legally binding agreement;
  3. Consideration – consideration is the price paid (not necessarily money) for the promise of the other party;
  4. Legal capacity – not all people are completely free to enter into a valid contract (eg people with a mental impairment, minors);
  5. Consent – the consent of each party to the contract must be genuine; and
  6. Not illegal or void – the law does not enforce all contracts (eg contracts to commit a crime or prejudice the administration of justice).

If the parties to a MOU do not intend for it to be binding, then the parties should:

  1. include words to the effect “The parties do not intend this MOU to be legally binding” to help make the intentions of the parties clear; and
  2. ensure the MOU does not set out obligations for the parties. For example, does not use language such as “party A shall do xyz” but instead use “party A may do xyz”.

If you are in doubt about whether an MOU is binding or not, we can  advise before  you sign or agree to anything.

Josephine Heesh, Partner
Michael Crowe, Associate

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