What Is A Memorandum of Understanding? 

emily gordon brown
Emily Gordon BrownLegal Assessment Specialist @ Lawhive
Updated on 8th April 2024

When two sides collaborate or form a relationship, it’s essential to establish clear agreements that safeguard everyone’s interests. This is where a Memorandum of Understanding can come into play. 

what-is-a-memorandum-of-understanding

In this article, we’ll explain exactly what a Memorandum of Understanding (MOU) is, what it entails, its legal significance, duration, key components, and more. 

What is a Memorandum of Understanding? 

A Memorandum of Understanding is a formal document that outlines the terms and understanding between agreeing parties. While not a legally binding contract, it sets the framework for future agreements and collaborations. 

What is a Memorandum of Understanding used for?

A Memorandum of Understanding (MOU) is commonly used to establish a formal understanding between parties entering a collaborative arrangement.

It is used across various sectors and industries, including business partnerships, school partnerships, joint ventures, research collaborations, and international agreements, especially when parties aren’t necessarily legally bound to each other, or when they can’t make a legally enforceable agreement for some reason.

Many companies and government agencies also use Memorandums of Understanding to outline relationships between departments, agencies, or closely held companies.

Is a Memorandum of Understanding legally binding?

Memorandums of Understanding are generally not intended to create legally binding contracts. However, they can be legally enforceable if the parties expressly state their intention to be legally bound by its terms. 

Whether or not a Memorandum of Understanding counts as a legally binding contract depends on whether:

  • One party offers something and the other party agrees to it.

  • Something of value is to be exchanged, like money or services. 

  • Both parties mean to enter into a legally binding agreement. 

Therefore, an MOU should include a clause stating whether the parties intend for it to be legally binding or if it serves as a statement of understanding and cooperation. 

How long does a Memorandum of Understanding last? 

The duration of a MOU is typically agreed by the parties involved, it can range from a specific timeline or be ongoing, depending on the nature of the agreement. 

Having said that, as we have noted, an MOU is not the same document as a formal contract and therefore isn’t suitable for long-term agreements or collaboration

What should be included in a Memorandum of Understanding? 

A Memorandum of Understanding is like a roadmap for an agreement. As such, it should lay out who’s involved, what they’re agreeing to, what they’re supposed to do, and who’s responsible for what. 

Key components of an MOU include: 

  • Identification of the involved parties.

  • A clear statement of purpose. 

  • Objectives. 

  • Roles and responsibilities of each party. 

  • Financial arrangements (if applicable). 

  • Confidentiality and intellectual property considerations.

  • Timelines. 

  • Termination clauses. 

  • Details of how disputes will be resolved. 

When parties draft an MOU, it’s all about finding common ground. Each side should talk about what they want, what they can offer, and what’s important to them. Then, they negotiate to find a middle ground that works for everyone. 

Usually, a solicitor will draft a MOU for the parties involved. 

If you're looking to draft a Memorandum of Understanding, our network of corporate solicitors can do so quickly, for affordable fixed fees.

Get in touch with our Legal Assessment Team today for a free quote.

Should a Memorandum of Understanding be signed? 

While not mandatory, it’s a good idea for all parties to sign a Memorandum of Understanding to show their agreement with and commitment to the terms outlined. That being said, verbal agreements can also suffice in some cases. 

What are the advantages of a Memorandum of Understanding? 

One of the main advantages of a Memorandum of Understanding is they’re not as formal as other legal documents. This flexibility makes them useful for making changes to agreements. 

Another advantage of an MOU is that it provides accountability and ensures everyone knows what they’re putting in, what they’re getting out, and when it’s all supposed to happen. Plus, as it’s written down, it can be used to keep everyone in the loop. 

An MOU also lays out clear goals and objectives from the start, making it easier to track progress.

What are the disadvantages of a Memorandum of Understanding? 

An MOU might not always be legally binding. Some may see this as an advantage as it gives them flexibility. For example, they can back out or change their mind without breaking any rules. But for others, this can be seen as a disadvantage as there’s no real obligation to stick to what’s written in the MOU. 

Furthermore, putting together an MOU can be a lengthy process, involving lots of planning and negotiation. That being said, an experienced solicitor can help streamline this process and provide specialist advice should you need it.

What is the difference between a Memorandum of Understanding and a Memorandum of Agreement?

A Memorandum of  Understanding is typically used as a preliminary agreement between parties that outlines the general terms and intentions of their collaboration or relationship. 

On the other hand, a Memorandum of Agreement is a more formal document that outlines specific terms and conditions agreed upon by both parties. Crucially, a Memorandum of Agreement is often legally binding, therefore it's used when parties want to establish a more structured and legally enforceable relationship. 

Can you terminate a Memorandum of Understanding? 

A Memorandum of Understanding should include a termination clause. Given that this document is not usually legally binding, it is not as complex to walk away from compared to a legal contract unless it contains a clause that indicates that the parties intend to be legally bound by the document. 

In any case, it’s a good idea to consult with a solicitor before ending a Memorandum of Understanding to ensure you understand your rights and responsibilities. This can help mitigate the risk of potential legal consequences which may arise. 

How can Lawhive help? 

If you’re considering drafting or signing an MOU, you should speak to a solicitor in the first instance. An experienced lawyer can help protect your interests and advise you of your responsibilities within the Memorandum. 

At Lawhive, our network of expert lawyers is on hand to provide advice and practical support for your legal matters. From drafting an MOU to reviewing one before you commit to anything, we’re here to help your arrangements run smoothly. 

To get started, speak to our Legal Assessment Team today for a free case assessment and quote. 

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