Side Letters In New Zealand: Clarifying Contract Terms

If you’re negotiating a contract for your business, you’ll know the pain of reaching “almost agreed” … only for one tricky point to keep popping up.

Maybe a key customer wants a special reporting line. Maybe a supplier will only proceed if you give a short-term concession. Or maybe two founders agree on an extra promise that doesn’t quite fit neatly into the main agreement.

This is where side letters can be genuinely useful. But they can also create confusion (and real legal risk) if they’re used casually or drafted poorly.

In this guide, we’ll walk you through how side letters are commonly used in New Zealand, when they’re appropriate, what can go wrong, and how to use them to protect your business (not accidentally undermine your main contract).

What Is A Side Letter (And Why Do Businesses Use Them)?

A side letter (sometimes called a “side agreement” or “letter agreement”) is a separate written document that sits alongside a main contract.

Businesses typically use side letters to:

• Clarify how an existing clause will operate in practice
• Record an additional promise that the parties have agreed to
• Create a temporary arrangement (for example, a short-term discount, a trial period, or transitional support)
• Keep sensitive terms out of the main contract (such as special pricing or bespoke obligations)

From a commercial perspective, a side letter can be a fast, flexible way to get a deal over the line without reopening the entire contract.

That said, “fast and flexible” doesn’t mean “informal and risk-free”. A side letter can be legally binding, and it can change your obligations in ways you might not fully expect.

Are Side Letters Legally Binding In New Zealand?

Often, yes.

Whether a side letter is enforceable depends on general contract principles: did the parties intend to create legal relations, are the terms sufficiently clear, and is there consideration (or is it executed as a deed)? The same core rules apply as any other agreement.

If you’re unsure what makes something enforceable, it’s worth getting comfortable with the basics of what makes a contract legally binding in New Zealand, because side letters are usually assessed using that same framework.

Side Letter vs Contract Variation: What’s The Difference?

In practice, side letters often do one of two things:

• They clarify the existing contract (without changing it), or
• They vary the existing contract (by adding, removing, or adjusting obligations)

The tricky part is that a document labelled “side letter” can still operate as a variation if it changes what the parties must do.

And if it’s truly varying the deal, you’ll want to think carefully about whether you should be using a more formal document (like a variation deed) rather than a short letter.

When Should You Use A Side Letter In New Zealand?

Side letters can be a good fit when you need precision and speed, but you don’t want to rewrite a full agreement.

Common examples we see for small businesses include:

1) Bespoke Commercial Terms (Without Reissuing The Main Contract)

You may have standard terms with customers or suppliers, but one important counterparty wants a special arrangement, such as:

• an early payment discount
• a temporary service level uplift
• a revised delivery schedule for a transition period
• additional reporting or governance check-ins

A side letter can record that “special deal” without editing your standard template (which you likely want to keep consistent across the rest of your customer base).

2) Confidential Arrangements

Sometimes you don’t want a particular commercial term widely circulated internally or shared with third parties later (for example, if the contract might be produced during due diligence).

A side letter can keep sensitive details separate, but don’t confuse “separate” with “secret”. You still need to consider confidentiality obligations, and in many cases it’s cleaner to put confidentiality in a dedicated Non-Disclosure Agreement (NDA) as well.

3) Transitional Support After A Deal Is Signed

Imagine you’ve bought business assets, entered a new supplier deal, or onboarded a new enterprise customer. There may be “transition tasks” that are real obligations, but too detailed or time-limited to sit in the main agreement.

A side letter can document those transition commitments clearly (and reduce misunderstandings later).

4) Clarifying How A Clause Works In Practice

Contracts can be legally correct but practically ambiguous.

For example, your agreement might say “monthly reporting will be provided”, but you and the other party have a clear understanding about:

• the format (dashboard, spreadsheet, email summary)
• the data fields
• the deadline each month
• who receives it

A side letter can lock in that shared understanding, so your operations team isn’t guessing.

What Can Go Wrong With Side Letters? (Common Risks For Small Businesses)

Side letters are useful, but they’re also a common source of disputes because they sit “beside” the main agreement rather than neatly inside it.

Here are some of the key risks to watch for when using side letters in New Zealand.

They Can Accidentally Override Your Main Contract

If your side letter conflicts with the main agreement, you can end up in a messy argument about which document wins.

Some contracts include an “entire agreement” clause, which is generally designed to limit reliance on pre-contract statements and collateral understandings. However, a side letter can still be effective if it’s clearly intended to operate alongside the main agreement (or to vary it) and it’s drafted and executed consistently with the contract’s variation requirements.

This is exactly why side letters need careful wording about how they interact with the main contract.

They Can Create “Two Versions Of The Deal” Internally

Even if the side letter is legally fine, your team can still trip up operationally if:

• sales signs the side letter, but finance doesn’t know about it
• operations follows the main contract and misses the side letter obligations
• customer support applies the wrong process because the “real deal” is split across documents

From a business owner’s perspective, this is a major reason side letters can become expensive: not because they’re inherently bad, but because they’re easy to lose track of.

The Terms Might Be Too Vague To Enforce

Side letters are often drafted quickly. That’s where problems start.

Terms like “best efforts”, “reasonable support”, or “priority service” can sound fine in a negotiation, but they can be hard to enforce unless you define what they mean in practical, measurable terms.

You Might Trigger A “Variation Must Be In Writing And Signed” Clause

Many commercial contracts say something like: “Any variation must be in writing and signed by both parties.”

A side letter can satisfy that requirement if it’s drafted and signed correctly. But if your side letter is informal (for example, an email chain), you might end up in a grey area about whether it legally varies the contract at all.

You Might Need A Deed Instead Of A Letter

Sometimes a side letter is trying to do something significant, like:

• waive rights
• extend timeframes without any new consideration
• release a party from obligations

In situations like these, a deed can be a more robust tool than a simple letter (particularly where consideration is unclear or absent). Whether a deed is necessary will depend on the specific change and the underlying contract, so it’s worth getting advice on the right format. If you’re weighing this up, it helps to understand the difference between a deed and an agreement, because the formalities and legal effect can be quite different.

How To Draft A Side Letter That Actually Protects Your Business

A good side letter should do two things at once:

• clearly record what you’ve agreed, and
• avoid creating unintended consequences in the main contract

Below is a practical checklist you can use when preparing side letters in New Zealand.

1) Identify The Main Agreement Clearly

Don’t assume it’s obvious.

Include details like:

• the date of the main agreement
• the parties’ full legal names
• the contract name (if it has one)
• any reference number

This reduces the risk of the side letter being argued to relate to the “wrong” agreement later.

2) Be Explicit About The Purpose: Clarification Or Variation?

Spell out whether the side letter is:

• clarifying existing terms (without changing obligations), or
• varying the contract (changing obligations)

In many cases, it’s safer to assume it might be treated as a variation and draft accordingly (including signatures and clear amendment language).

If what you really need is a formal change to the contract, using a Deed of Variation can be the more robust option, especially where the change is significant or the consideration point is unclear.

3) Deal With Priority And Conflicts

This is one of the most important parts.

A well-drafted side letter usually includes a clause that says something like:

• “Except as set out in this side letter, the main agreement remains unchanged.”
• “If there is any inconsistency, prevails to the extent of the inconsistency.”

Which approach is best depends on what you’re trying to achieve, but you want to make the intended hierarchy clear.

4) Use Practical, Operational Language

Side letters often deal with “how things will actually work”, so get specific.

For example, instead of “priority support”, consider something measurable like:

• support requests acknowledged within X business hours
• named account manager allocated
• monthly service review meeting on a set schedule

This avoids disputes where each party has a different mental picture of what the promise meant.

5) Check You’re Not Breaching Another Obligation

This comes up more often than you’d think.

For instance:

• A side letter offering discounted pricing might conflict with a “most favoured customer” promise you made elsewhere.
• A side letter giving exclusivity could clash with your existing distribution arrangements.
• A side letter expanding scope might create obligations your insurance doesn’t cover.

This is why it’s worth reviewing side letters in the context of your broader business, not just the single deal in isolation.

6) Make Sure It’s Signed Correctly

Don’t skip the basics:

• Use the correct legal entity name (company name vs trading name).
• Make sure the signer is authorised (director, properly authorised employee, or under a delegated authority).
• Use consistent signing blocks and dates.

If your main contract has specific signing requirements, follow those here too.

Side Letters vs Heads Of Agreement vs Variations: Choosing The Right Tool

One reason side letters get misused is that they’re treated as the “default” extra document. But depending on what you’re trying to achieve, another tool may suit better.

When A Heads Of Agreement Might Be Better

If you’re still negotiating the main deal and want to document high-level commercial terms first, a Heads of Agreement can be a more appropriate stepping stone.

This can be especially useful when:

• you want to confirm key terms while lawyers draft the long-form agreement
• the deal is complex and you want alignment before investing time and cost
• you need clarity on what (if anything) is binding at the negotiation stage

A side letter is usually better when the main contract already exists (or is about to be signed) and you’re clarifying or tweaking specific points.

When You Should Use A Formal Variation (Instead Of A Side Letter)

If you’re changing core commercial terms (price, scope, term, termination rights, liability settings), you’re often better off with a formal variation document.

That might be a variation agreement or a deed, depending on the structure and whether consideration is an issue.

Using the right document format reduces the risk that the change is later challenged as unclear, invalid, or inconsistent.

When An NDA Is The Missing Piece

If the real reason for the side letter is confidentiality (for example, “we’ll do this special deal, but don’t share it”), then the side letter might not be enough on its own.

An Non-Disclosure Agreement can give you clearer protection around what information is confidential, how it can be used, and what happens if it’s disclosed.

Key Takeaways

• Side letters can be legally binding in New Zealand, even if they feel informal, so it’s important to treat them like real contract documents.
• A side letter is usually used to clarify a contract term or record an additional arrangement without rewriting the entire main agreement.
• The biggest risks are inconsistency with the main contract, vague drafting, and internal confusion about “which document is the real deal”.
• A strong side letter should clearly identify the main agreement, state whether it’s a clarification or variation, and include a priority clause explaining what happens if there’s a conflict.
• If you’re making significant changes, a formal variation document (sometimes a deed) may be more appropriate than a side letter.
• Before signing, it’s smart to have the document reviewed so you don’t accidentally expand your obligations or weaken key protections in the main contract.

If you’d like help drafting or reviewing a side letter (or checking how it interacts with your main agreement), our team can help you get it right from day one. You can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.