Understanding Side Letters: What They Are and How to Use a Side Letter Template in Commercial Agreements

When you’re negotiating a business deal, you expect the main contract to cover all the key points. But what happens if there are extra details, side promises, or sensitive arrangements you want recorded without changing the entire contract? That’s where side letters come in.

Side letters are an often-overlooked-but incredibly useful-tool in commercial agreements across the UK. Whether you need a bespoke side arrangement, clarification on a contract term, or to keep specific terms confidential, understanding how side letters work can help protect your business. In this guide, we’ll walk you through what a side letter is, how to use a side letter template, and the legal must-knows to get it right from day one.

If you’re considering using a side letter, or you’ve heard the term and want to know what’s involved, keep reading for a practical, step-by-step guide to using this powerful legal instrument in your business deals.

What Is a Side Letter and Why Are They Used?

Let’s start with the basics. A side letter is a separate legal document that sits alongside a main commercial agreement. Think of it as an official “add-on”-it clarifies, supplements, or makes exceptions to certain terms in the main contract, usually for a particular party or specific situation. But unlike informal notes, a side letter is designed to be legally binding.

Business owners use side letters for a range of reasons, including:

• Add extra details or clarify terms of the contract that can’t easily be slotted into the main document
• Record side promises or arrangements-like a specific discount for one customer, or an extension of time for just one supplier
• Keep certain points confidential from other parties to the main contract
• Allow flexibility without renegotiating the full contract
• Document regulatory or compliance matters that need to be separated from commercial terms

For example, imagine you’ve signed a supply agreement, but you want to give one long-standing customer extra payment flexibility this quarter. Instead of amending the main supply contract (which might trigger a lengthy round of negotiations or board approvals), you can record the special payment arrangement in a side letter between just you and that customer.

Important: A side letter should only be used for points that do not fundamentally contradict or undermine the main contract. If the change is significant, an amendment to the contract is usually required. For more on safely changing contract terms, see our guide on changing contract terms in Britain.

What Does a Side Letter Look Like? Key Features and Structure

While there’s no single “correct” format, side letters generally share certain features:

• They are addressed to a specific party (or parties) involved in the main agreement
• They reference the original/main agreement in clear terms (including the date and parties)
• They describe the additional, varied, or clarified terms in detail
• They may confirm if the side letter is intended to be legally binding (or not)
• They are signed by authorised representatives, just like any legal agreement

A side letter template might include:

• Heading (e.g., “Side Letter to ”)
• Date and parties
• Reference to the main agreement
• Details of the additional or modified arrangement
• Duration or expiry (if applicable)
• Statement on enforceability (legally binding or not)
• Governing law (usually aligned with the main agreement)
• Signature blocks

If you’d like to see other types of commercial contract structures and how they work, check out our plain-English overview of key commercial contract elements.

When Should You Use a Side Letter Instead of Amending the Main Contract?

Deciding between using a side letter and directly amending the contract can be tricky. As a rule of thumb, consider a side letter if:

• You need to add a point that affects only a subset of parties
• You’re dealing with commercial arrangements that need to remain confidential
• The side arrangement is temporary or experimental
• The main contract is already signed, and reopening it would be slow, costly, or complex

However, you shouldn’t use a side letter if:

• The change affects core rights and obligations of all parties
• The proposed side arrangement would contradict or breach the main contract
• Regulated contracts (such as with consumers) restrict the use of undisclosed side terms

Whenever you’re unsure, chat with a legal expert before relying on a side letter. If a formal amendment is a better option, review our step-by-step guide on amending contracts in the UK.

Are Side Letters Legally Binding?

Generally, yes-side letters can be legally binding, provided they satisfy the same requirements as any contract. That means they must set out clear promises (offer and acceptance), involve consideration (something of value or benefit), and show an intention to be legally binding. Ambiguous or vague wording can cause issues, so clarity is key.

Always:

• State whether the side letter is meant to be binding or not
• Ensure all parties agree and sign (just like the main contract)
• Align the governing law and dispute resolution terms with the main contract (unless you have good reason not to)

Disputes can arise if it’s not clear whether a side letter is enforceable. To avoid problems, check out our article on making contracts enforceable for practical tips.

What Risks Do Side Letters Pose?

While side letters are handy, using them comes with some legal and commercial risks. Here are a few to be aware of:

• Conflicts with the main contract: If a side letter contradicts the main contract, it can create confusion or even make both unenforceable.
• Regulatory and compliance breaches: Undisclosed side arrangements can breach disclosure obligations in certain industries (such as financial services or franchising).
• Challenge in future disputes: If only some parties are bound by a side letter, this can complicate enforcement or lead to claims of unfairness.
• Unintended waivers or changes: It’s easy to accidentally waive important rights or vary core terms using a side letter if it’s not worded carefully.

To minimise these risks, ensure any side letter is clearly drafted, reviewed by a qualified lawyer, and securely stored with your other core business contracts. It’s best practice to reference the side letter in any future negotiations or amendments.

Best Practices for Drafting Side Letters

If you’ve decided a side letter is the way to go, here are the essential tips to help you get it right:

• Use clear, simple language: Avoid ambiguous terms and reference the main agreement fully.
• Specify if it’s legally binding: This prevents doubt about enforceability.
• Limit the scope: Only cover the extra arrangement or clarification needed.
• Reference the main contract throughout: State explicitly that this is an addition or clarification, not a replacement.
• Sign and date: All relevant parties’ representatives should sign the side letter for it to be valid.
• Store it safely: Keep the signed side letter with your master contract documents for future reference.

It’s always wise to have a solicitor review any side letter before you sign. If you want a hands-on review, our legal team can support you with contract reviews and bespoke drafting for your business needs.

Can I Use a Side Letter Template?

There are plenty of side letter templates online, but be careful-no two deals are the same. Using a generic template without professional input can lead to issues such as:

• Unintended conflict or contradiction with your main agreement
• Non-compliance with industry regulations or statutory disclosure rules
• Ineffective or unenforceable wording
• Failure to address signing formalities (such as correct parties or electronic signature protocol)

If you do use a side letter template, make sure to:

• Customise it for your actual agreement and circumstances
• Update details (names, contract reference, timeline) carefully
• Seek legal review before signing-especially if the arrangement could have significant financial or operational impacts

A professionally drafted or reviewed side letter avoids unintended risk and gives you peace of mind. If you’re tempted by a template, consider starting with our essential tips and then speaking to a legal expert for any non-standard arrangements. For related contract types, see our hub on key contract terms for UK businesses.

What Legal Clauses and Extra Protections Should I Consider?

To strengthen your side letter, consider including clauses such as:

• Entire Agreement Clauses: These specify whether the side letter should be read as part of the whole contract or acknowledge it as a separate, binding document. (Read more about entire agreement clauses here.)
• Confidentiality: If the arrangement should not be disclosed to other parties
• Dispute Resolution: Clarity over what happens if there’s a disagreement about the side letter
• Governing Law: Always include which country’s law applies (usually the same as the main contract)
• Duration and termination: Spell out how long the side arrangement lasts and how it can be ended

Including these extra protections ensures your side letter isn’t just another piece of paper-but a meaningful, enforceable tool to protect your interests.

How Do Side Letters Work With Other Contract Variations?

Side letters don’t exist in a vacuum. They’re just one tool for managing contract changes or special terms. Here’s how they compare to other approaches:

• Contract amendments: Formal changes to the existing contract, usually affecting all parties
• Addendums: Supplements or extra documents added to the contract (these can sometimes overlap with side letters, but are usually more formal and affect everyone involved)
• Waivers and consents: Allowing one-off exceptions to strict terms in a contract, usually via a shorter written notice

Not sure which instrument is right for your situation? Learn more about addendums vs amendments and best practice for updating your contracts legally.

When Should I Seek Legal Advice on Using a Side Letter?

While it’s tempting to handle minor contract changes internally, there are times when legal advice is a must:

• If the side letter could have material financial, legal, or operational consequences
• When regulatory or licensing compliance is a concern
• If the main contract has strict variation or “entire agreement” clauses
• If any party is based overseas, or multiple legal systems could apply
• If there’s any ambiguity or dispute about the side arrangement

Getting it wrong can result in unenforceable arrangements and increased risk of disputes later. Setting up your legal foundations properly now will save major headaches further down the line. If you need help, our team offers contract review and drafting services tailored for UK businesses.

Key Takeaways

• A side letter is a separate, legally binding document used alongside a main commercial contract to clarify, supplement, or vary certain terms or arrangements.
• Use a side letter if the additional arrangement is specific to certain parties or temporary, but avoid it if the change is fundamental to the main contract.
• Clearly reference the main contract, specify whether the side letter is binding, and have all relevant parties sign it.
• Be aware of the risk of conflict with the main agreement-get your side letter professionally drafted or reviewed for compliance and enforceability.
• Templates can be a starting point, but every arrangement should be tailored to your particular circumstances and checked by a solicitor.
• Including clauses regarding confidentiality, governing law, and dispute resolution will provide extra protection.
• It’s always best to seek legal advice if the arrangement involves significant risk, international parties, or compliance requirements.

If you’d like help drafting or reviewing a side letter, or if you’re not sure how to make your commercial agreements work best for your business, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat. We’re here to help you protect your business-right from day one.