Delaware decision opens door to enforcement of term sheets

The Supreme Court of Delaware recently held that covenants to negotiate in good faith are enforceable and can be used to compel negotiating parties to adhere to otherwise non-binding term sheets.

Accordingly, parties wishing to negotiate non-binding term sheets, letters of intent and similar preliminary agreements should ensure that such agreements cannot be enforced by (i) including a disclaimer that the preliminary agreement is non-binding and can be terminated or re-negotiated at any time, and (ii) avoiding provisions in subsequent binding agreements that reference or otherwise incorporate such non-binding agreements…

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