Side Letters in New Zealand

You’ve finally negotiated the big commercial contract. The main agreement is ready to sign, everyone’s aligned (mostly), and you’re keen to get the deal moving.

Then someone says: “Can we just add a side letter?”

If you’ve ever heard that phrase and felt a bit unsure, you’re not alone. A side letter agreement can be a smart, practical tool for New Zealand businesses - but only when it’s used carefully, and only when it fits your bigger contract strategy.

In this guide, we’ll walk you through what a side letter is, when it makes sense, what to watch out for, and how to make sure it actually protects your business (instead of creating confusion later).

What Is A Side Letter Agreement?

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

It’s used to record extra terms, clarifications, or specific commitments that relate to the main deal - without re-drafting the entire agreement.

In practice, it might:

confirm how a clause will be applied to your particular situation
add a one-off arrangement that isn’t appropriate for the body of the main agreement
set out a process or timeline that’s still being finalised
grant a limited exception (for example, to a restriction or policy)

Side letters often show up in transactions and commercial relationships where the main agreement is relatively standard (or already agreed), but you still need one or two tailored points nailed down.

Are Side Letters Legally Binding In New Zealand?

They can be legally binding - but it depends on how they’re drafted, how they’re signed, and how they interact with the main agreement.

A side letter is more likely to be binding if it:

clearly shows both parties intended to create legal obligations
is signed (or executed properly) by the relevant parties
is sufficiently certain (meaning it isn’t vague on key obligations)
fits with the main agreement (or clearly states it changes a particular clause)

One common trap is treating a side letter like an informal “confirmation email” - and then discovering later that it conflicts with the main contract, or that the contract says changes and side arrangements only count if they’re documented in a particular way.

How Is A Side Letter Different From A Contract Variation?

This is where it gets a little technical (but we’ll keep it practical).

A side letter is still a contract document, but it’s often used to deal with a specific point “off to the side” of the main agreement. A variation is more directly about changing the terms of the main contract itself.

Sometimes a side letter is effectively a variation, even if it’s not called that. That’s why it’s crucial to check what the main agreement says about variations (including whether variations must be in writing and signed, and whether the contract allows side letters at all).

If you’re formally changing an existing agreement, it may be cleaner to use a Deed of Variation or a contract variation document, rather than a side letter that creates uncertainty.

When Should NZ Businesses Use A Side Letter Agreement?

Side letters are most helpful when you need speed, flexibility, and precision - without reopening the entire negotiation on the main contract.

Here are common situations where a side letter can make sense for NZ businesses.

1) You Need To Clarify How A Clause Works In Practice

Main agreements often include broad language (especially templates, industry-standard agreements, or documents drafted for a wide range of customers or suppliers).

A side letter can clarify the practical meaning of a clause. For example:

how service levels will be measured
how reporting will work
what “reasonable assistance” looks like in your context
what happens during onboarding and handover

If you’re providing ongoing services, it might also be more appropriate to document those expectations in a Service Level Agreement rather than a side letter - especially if performance and remedies are central to the relationship.

2) You’re Agreeing To A One-Off Exception Or Special Treatment

Sometimes, you want to keep the “standard” contract standard - but you also want one tailored promise for a specific counterparty.

Examples include:

a temporary discount or pricing concession
a limited waiver of a requirement (eg, a document, insurance certificate, or process)
a transition period where certain obligations won’t apply
an extension of a deadline due to a known event or delay

This can be particularly useful when you don’t want that special arrangement to become precedent for every other customer, contractor, franchisee, supplier, or partner you deal with.

3) You Want Confidentiality Around A Particular Term

Sometimes, parties don’t want a specific term to be visible to others who might later see the main contract (for example, in a due diligence process, an internal document review, or where a “master” agreement is used across multiple counterparties).

A side letter may be used to keep a term more contained, while still recording it in writing.

That said, if confidentiality is a key concern, you should make sure your confidentiality obligations are properly covered in the main agreement or a separate Non-Disclosure Agreement (or a confidentiality clause that’s drafted for your situation). A side letter isn’t automatically “more confidential” - it just may be circulated less often in practice.

4) The Main Contract Is “Locked” (Or Hard To Edit)

In some industries, the main agreement is difficult to change because it’s:

owned by a head office or group entity
a large “standard form” contract that the other party refuses to edit
already signed, but you need to adjust one small issue
tied to compliance processes that make amendments slow

In these cases, a side letter can be a pragmatic solution - as long as the main agreement allows it and the side letter is drafted carefully.

What Should A Side Letter Agreement Include?

A good side letter is short, clear, and leaves as little room for argument as possible. If it’s vague, you’ll often end up with the exact problem you were trying to avoid: uncertainty about what the deal actually is.

While every deal is different, most side letters should cover the following.

Parties And Background

the full legal names of the parties (matching the main agreement)
a reference to the main agreement (date, title, and parties)
a short background paragraph explaining why the side letter is being entered into

The Specific Side Terms

This is the “meat” of the side letter. Keep it targeted.

For example, if you are changing a payment milestone, say:

what the original milestone was
what it is being changed to
when the change applies (start date and end date, if temporary)

If you’re agreeing to provide additional services or a different deliverable, be specific about scope, timing, and acceptance.

If the side letter is really setting out a mini “work order”, you may be better off using a contract structure with schedules, a statement of work, or a tailored Master Services Agreement.

Relationship With The Main Agreement (This Part Matters A Lot)

The side letter should clearly state how it interacts with the main agreement, for example:

the main agreement remains in full force except as amended by the side letter
if there is any inconsistency, the side letter prevails (or the main agreement prevails - but be deliberate)
the side letter is deemed part of the agreement (or is separate but binding)

If you skip this, you can end up with competing documents and no obvious “winner” when a dispute arises.

Confidentiality (If Needed)

If the term you’re documenting is commercially sensitive, consider whether the side letter needs its own confidentiality clause - or whether it’s already covered under the main agreement.

Be careful here: if your main agreement has a full confidentiality clause, you don’t want to accidentally create a different confidentiality standard in the side letter and cause confusion.

Execution / Signing

Make sure the side letter is signed correctly by the parties (and by the right people).

It’s also worth checking:

does the main agreement require variations or side agreements to be signed by authorised signatories only?
does the main agreement require changes to be documented as a “variation” (and, depending on the context, whether a deed is required if there’s no fresh consideration)?
is the party a company, and does it have execution requirements under its constitution or internal approvals?

If you’re operating through a company, it’s smart to ensure your internal approvals are tidy too - for example, having a Company Constitution and proper director resolutions in place can make it easier to show decisions were made validly.

Common Risks With Side Letter Agreements (And How To Avoid Them)

A side letter can be a neat solution - but it can also create real legal risk if it’s treated as an “informal add-on”. Here are the issues we see most often for small businesses.

Risk 1: The Main Agreement Says Side Deals Don’t Count

Many commercial contracts include an “entire agreement” clause. In plain terms, this clause often says something like:

the written contract is the whole agreement between the parties, and
anything said or agreed outside it doesn’t apply unless it’s included in a formal variation (or otherwise documented in the way the contract requires)

Some agreements also include strict rules for variations (for example, “must be in writing and signed by both parties”).

If your side letter doesn’t meet those requirements (or if the main contract doesn’t allow side arrangements), you could end up with a document that looks helpful but is hard to enforce.

What to do: review the main agreement first and draft the side letter so it clearly fits within those rules (for example, by treating it as a variation or ensuring it’s expressly permitted and properly executed).

Risk 2: The Side Letter Accidentally Contradicts The Main Agreement

Even small changes can have ripple effects.

For example, if you provide a payment extension in a side letter, does that impact:

late payment interest?
default triggers?
termination rights?
the delivery timetable?

If the side letter changes one part of the deal but doesn’t address related clauses, you may end up with internal inconsistencies.

What to do: map the side letter term back to the contract and check what else it affects. This is where a contract review can save a lot of pain later.

Risk 3: The Side Letter Creates A “Handshake Deal” Problem

Sometimes side letters are used because the parties don’t want to renegotiate the main agreement - but they still want to “park” an important point.

This is where vague language creeps in, like:

“We’ll act reasonably…”
“We’ll work together to agree a process…”
“We’ll consider providing additional support if needed…”

These phrases might feel cooperative, but they can be hard to enforce and easy to dispute.

What to do: keep obligations specific: who does what, by when, and what happens if it doesn’t occur.

Risk 4: Consumer Law Or Fair Trading Issues If You’re Dealing With Customers

Side letters sometimes show up in customer deals (especially where a customer negotiates a special arrangement or exception).

If you’re dealing with consumers (or even small businesses in some contexts), you also need to keep broader legal obligations in mind, including:

Fair Trading Act 1986 (misleading or deceptive conduct, false representations, unfair practices)
Consumer Guarantees Act 1993 (automatic guarantees for consumers, limits on contracting out)

What to do: don’t assume a side letter can “override” legal protections. Make sure your promises are accurate and consistent with how you actually deliver your goods or services.

Side Letters In Common NZ Commercial Scenarios

To make this more concrete, here are a few examples of where a side letter might come up for NZ businesses (and what to consider).

Supplier Or Distribution Deals

You may have a supply agreement with standard terms, but agree by side letter on:

exclusive territory for a limited period
a short-term rebate or discount
marketing support contributions

In these arrangements, you’ll want the side letter to clearly define timeframes and any conditions (like minimum order quantities).

Commercial Leasing Arrangements

While the lease itself should contain the core legal terms, sometimes parties use side letters for additional arrangements like:

fit-out contributions or reimbursement timing
rent-free periods (if not already documented in the lease)
temporary variations during disruptions

If you’re negotiating premises, make sure the “real” deal is properly captured in the lease package - a side letter shouldn’t be doing heavy lifting that belongs in a formal Commercial Lease Agreement.

Investment, Founders, And Shareholder Arrangements

Side letters can also appear in investment contexts, for example where:

an investor gets a special information right
a founder has an additional restraint or special obligation
a party gets a consent right for certain decisions

These are high-stakes terms, and it’s important they don’t conflict with the main governance documents. If you have (or need) a Shareholders Agreement, side arrangements should be checked carefully against it.

Privacy And Data Handling Add-Ons

If you’re sharing customer data, using software tools, or integrating systems with another business, you might agree to extra safeguards by side letter.

Just remember: in New Zealand, the Privacy Act 2020 applies to most organisations handling personal information. If you collect personal information from customers through your website or platform, a fit-for-purpose Privacy Policy is usually part of your legal foundations (and side letters shouldn’t contradict it).

Key Takeaways

A side letter is a separate written agreement that sits alongside a main contract to clarify, supplement, or modify specific terms.
Side letters can be legally binding in NZ, but enforceability depends on clear drafting, intent, certainty, and alignment with the main agreement’s rules (especially “entire agreement” and variation clauses).
Side letters are often useful for one-off exceptions, tailored clarifications, confidentiality-sensitive terms, or situations where the main agreement is difficult to edit.
A good side letter should clearly identify the main agreement, set out the exact side terms, and explain which document prevails if there’s an inconsistency.
Common risks include contradiction with the main contract, vague wording, and accidental non-compliance with the contract’s formal variation requirements.
If a side letter is being used to change an existing agreement, you may be better off using a proper variation document (and getting legal advice before you sign).

If you’d like help reviewing or drafting a side letter agreement (or making sure it works properly with your main commercial contract), we’re here to help. You can reach us on 0800 002 184 or at team@sprintlaw.co.nz for a free, no-obligations chat.

Side Letters In New Zealand: What They Are And When To Use Them