Letters of intent and term sheets are common in Spain. Although they are nonbinding by nature, the binding character of the document will ultimately depend on the precise content and wording of the document, as well as the circumstances surrounding the transaction and the conduct of the parties.
The content of these types of documents is normally dual: on the one hand, the parties set out the anticipated terms of the proposed transaction and other ancillary matters on a nonexhaustive and nonbinding basis; on the other hand, the parties set out certain obligations and undertakings in connection with the negotiation process generally, which are intended to be legally binding and enforceable in accordance with their terms. Binding provisions usually include confidentiality, exclusivity, expenses and taxes, governing law and jurisdiction/arbitration.
- Exclusivity: It is common to include an exclusivity clause prohibiting the parties from negotiating and exchanging information with third parties during a limited period. Normally, the exclusivity undertaking is assumed by the seller (so it undertakes to negotiate with the buyer only), is configured as a binding commitment and, depending on the particularities of the transaction and the bargaining position of the parties, can be supplemented by a penalty clause.
- Break fee: It is not common to include break fees in letters of intent unless linked to any breach of binding obligations (e.g., breach of an exclusivity undertaking).
- Confidentiality: It is typical to include a broad provision on confidentiality regulating the exchange of information and documentation between the parties. As in the case of exclusivity, confidentiality provisions are configured as binding and, depending on the particularities of the transaction and the sensitivity of the information to be exchanged, can be supplemented by a penalty clause.
Exclusivity agreements and confidentiality agreements are relatively common in Spain. However, it is also common to include a comprehensive confidentiality/exclusivity clause in the term sheet or letter of intent rather than a separate agreement.
The decision to configure the relevant undertaking as part of the term sheet/letter of intent or as a separate agreement will depend on the particularities of the transaction (complexity, duration of the negotiations, sensitivity of the information to be disclosed, the timing of the information disclosure, etc.).