Side Letter in Contracts: What It Is and When to Use One (2026)

A side letter is a short, separate document that changes, clarifies, or adds to a main contract without rewriting the main contract itself. The parties sign it alongside the primary agreement, or sometimes afterwards, and it usually deals with one or two specific points that the signatories want handled privately or quickly. In practice it reads like a normal letter: it refers to the main agreement, states what is being varied or confirmed, and is signed by both sides. ## Why people use side letters The most common reason is speed and sensitivity. A main contract may be a standard template that many counterparties sign, such as a loan facility, a lease, an investment document, or a supplier framework. One counterparty wants a small concession that does not belong in the standard document. Rather than reopen and redraft the whole agreement, the parties record the special arrangement in a side letter. The main contract stays clean and consistent, and the bespoke term lives in a focused document. Side letters are common in commercial real estate (a rent concession or fit-out contribution), in private funds (fee discounts or special rights for a large investor), in lending (a relaxed covenant for one borrower), and in employment or settlement contexts (a specific personal arrangement). They are also used to confirm a shared understanding of how an ambiguous clause will operate, without changing the clause itself. ## Side letter or amendment: which do you need This is the key decision. A side letter and an amendment can both change a deal, but they feel different and carry different risks. Use an amendment when you want to change the main contract on the record, for everyone who later reads it. The amended term becomes part of the document trail. Use a side letter when the change is specific to the relationship, or you want to keep it out of the main document for confidentiality or administrative reasons. The trade-off is that a side letter can be forgotten, lost, or overlooked by people who only read the main contract. If the main contract is later assigned or novated to a new party, the side letter may not travel with it unless you plan for that. ## What a side letter should contain A well drafted side letter usually has these parts: - A clear reference to the main contract by date and parties, so there is no doubt which agreement it modifies.

• A statement of exactly what is being varied, clarified, or added, quoting or citing the relevant clause.
• Words confirming that, except as stated, the main contract continues in full force.
• An order of priority: if the side letter and the main contract conflict, which one wins. For a genuine variation the side letter should prevail; say so expressly.
• The same formalities as the main contract, including signatures from people authorised to bind each party, and any required witnessing.
• Governing law and, where relevant, confidentiality. ## A simple skeleton > Dear [Counterparty],

We refer to the [name of agreement] dated [date] between [Party A] and [Party B] (the Agreement). Terms defined in the Agreement have the same meaning here.

The parties agree that, notwithstanding clause [x] of the Agreement, [state the varied term clearly].

Save as varied by this letter, the Agreement remains in full force and effect. If there is any conflict between this letter and the Agreement, this letter prevails in respect of the matters it covers. This letter is governed by the law of [jurisdiction].

Please confirm your agreement by signing and returning the enclosed copy. Both parties sign. Keep it with the main contract in the same file. ## Common mistakes to avoid - Not stating priority, so it is unclear whether the side letter or the main contract wins on a conflicting point.

• Signing a side letter that the main contract does not permit. Many agreements say they can only be varied in writing signed by both parties, which a side letter can satisfy, but some require specific formalities or board approval. Check the variation clause first.
• Losing the side letter. Because it sits outside the main document, it is easy to misfile, so later readers act on the unmodified contract.
• Vague drafting. A side letter that says the parties will be reasonable about something adds confusion rather than certainty.
• Forgetting assignment and novation. If the deal can be transferred, say whether the side letter benefits and binds successors.
• Treating a material change as a side letter when, for clarity or regulatory reasons, it should be a formal amendment on the record. ## Is a side letter legally binding Yes, if it meets the normal requirements for a contract: agreement on the varied terms, an intention to create legal relations, proper authority, and in most systems some consideration or the correct execution formalities. A signed side letter that clearly varies an existing agreement is generally enforceable in the same way as the agreement it changes. Enforceability, stamping, and formality requirements vary by jurisdiction, so a side letter affecting land, shares, or a deed may need extra steps. This is general information, not legal advice. ## Keeping side letters from getting lost The real weakness of side letters is practical, not legal. They vary a deal but live apart from it, so the obligation they create can slip through tracking and renewals. The fix is to link every side letter to its parent contract and surface both together when anyone reviews the relationship. Keeping drafting, review, version history, and obligations in one AI workspace tuned to your company and built on Claude means a side letter is attached to its main agreement rather than floating in an inbox. Adira works this way, with transparent per-seat pricing. Learn more. The guidance above stands on its own. ## Bottom line A side letter is a focused, signed document that varies or clarifies a main contract without reopening it. Use it for specific, often confidential concessions; use a formal amendment when the change belongs on the main record. Always state priority, follow the main contract's variation rules, and keep the letter filed with the agreement it changes, because a side letter that nobody can find protects nobody.