Delaware decision opens door to enforcement of term sheets

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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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