Memorandum of Understanding (MoU) 

Often during registration and purchase of properties, buyers come across the word MoU or Memorandum of Understanding. One of the frequent questions asked includes what is an MoU and how it differs from an Agreement. A memorandum of understanding can be thought of as a statement of intention agreed upon by parties in order to take a particular action or work towards a common goal. MoU is often thought of as a guideline for future transactions and is non-binding in nature. 

In case the MoU does not state any guidelines clearly without creating any binding effect, then such regulations cannot be enforced on either parties. In such cases, these statements can be considered to be just guidelines meant to encourage future transactions. However, this is just a way for the two parties to reach a decision and does not grant either parties any specific rights. In cases where it is more convenient to go with a simple non restrictive document, it is seems more sensible and less risky to go with a softer document instead of a tight legal document like an agreement. MoUs are especially useful in those cases where the final agreement is dependent on the fulfillment of certain conditions.

MoU is often used in case of real estate deals. Suppose you plan to purchase a house but do not have ready cash in hand. At such times, you could make a small advance payment and draw a MoU highlighting the terms and conditions of MoU and expected sale. In such cases, the seller might also include a clause mentioning that the agreement will become void in case he/she doesn't receive complete payment by the end of an agreed duration. After this time, he /she could refund the booking amount and cancel the booking. The house could then be sold to another buyer.

Mistakes made when drawing MoU

• Missing the specifics- Suppose you draw an MoU to redevelop your house. Ensure that you mention a stipulation highlighting that the builder cannot demolish the building. This will ensure clear understanding between both parties involved.
• Exclusion of a termination clause- Suppose you plan to terminate the MoU after registration of an agreement, then this should be explicitly mentioned in the MoU. Even though an MoU is not legally binding, the absence of a condition could lead to higher risk of litigation.

Situations in which an MoU can be drawn

1. To state an intention to buy/sell a property.
2. To state the payment that needs to be made for purchase or sale of a property.
3. To outline the schedule for payment.

Differences between Agreement and Memorandum of Understanding (MoU)

Some differences between Agreement and MoU are listed below:

1. An agreement can be legally enforced while an MoU cannot be legally enforced.
2. An agreement is the final, binding document that highlights the terms and conditions of the deal while an MoU should clearly state the intention of the document and mention the details of a later agreement that shall be drawn.
3. An agreement is binding in all cases while a MoU is not generally binding. It becomes binding in those cases when it is drawn for some monetary reasons or exchange. Note that a MoU cannot be made binding by just mentioning the word 'binding' in the document.
4. An agreement grants rights to the parties involved while MoU does not grant any rights but just states the intention of the parties involved.