In many instances, entities and individuals enter into agreements to agree in the form of memoranda of understanding. The intent of these agreements is to pave the way for the conclusion of a further agreement, being the main agreement between the parties (whose essential terms are still to be negotiated). The question arises as to whether a party can enforce any rights in the event that the main agreement does not come into existence – placing reliance on the agreement to agree.

In the context of an agreement to agree, most of the essential terms of the main agreement are still subject to negotiation between the parties, and as such, this form of agreement is vague and uncertain. As a result, it is important for potential contracting parties to be aware of the moment an enforceable agreement (with enforceable rights) comes into existence. 

In the case of Seale v Minister of Public Works [2020] JDR 2131 (SCA), the Supreme Court of Appeal (SCA) found inter alia that although an implicit obligation to negotiate in good faith is created in instances of an agreement to agree, this does not create an enforceable agreement to the extent that a deadlock mechanism is not catered for. In Seale, the SCA highlighted the principle in Premier of the Free State Provincial Government and Others v Firechem Free State (Pty) Ltd [2000] (4) SA 413 (SCA) that: “an agreement that the parties will negotiate to conclude another agreement is not enforceable, because of the absolute discretion vested in the parties to agree or disagree”.

It is therefore essential for an agreement to agree to include a deadlock mechanism prescribing further steps to be followed in circumstances where the parties cannot agree to essential terms of the main agreement. An example of a deadlock mechanism is seen in Letaba Sawmills (Edms) Bpk. v Majovi (Edms) Bpk. 1993 (1) SA 768 (AD); [1993] 1 All SA 359 (A) where a lease agreement specifically provided for a deadlock mechanism (being a determination by appointed arbitrators of a market related rental) in instances where the parties could not agree on the rental in the main agreement. This deadlock mechanism rendered the agreement to agreement valid and enforceable.

As such, while an agreement to agree may create a legal relationship between prospective contracting parties, the extent to which it creates any enforceable rights will depend on the inclusion of a deadlock mechanism that caters for an impasse arising between the negotiating parties.

While an agreement to agree (without a deadlock mechanism) may be unenforceable in respect of its terms, it is possible for such an agreement to be useful in litigation as documentary evidence proving the parties’ intentions when concluding the agreement (should a dispute arise regarding the main agreement or a related matter).

Agreements to agree may prove practical to guide parties in their negotiations of a main agreement, however it is an accepted principle that an agreement to agree is unenforceable for reasons of vagueness and uncertainty unless a deadlock mechanism is included. As such a “promise to contract” is merely that: a promise and not an enforceable right.