If an agreement is reached on all the conditions, compliance with one or more of the conditions is subject to the execution of a formal document. a. TIAA case. – The main cases of bona foil agreements in the Southern District of New York concern the loan commitments made by the Teachers Insurance and Annuity Association of America (TIAA) and provide good examples of the risk-sharing function of preliminary agreements. Sometimes these extra-legal forces achieve the desirable combination of commitment and flexibility. For example, in his discussion of flexible contracts between Hollywood film studios and star actors, Jonathan Barnett reports that there are “norms” that discourage the most monstrous forms of overcoming available as soon as a studio has shot with a star.  He notes that “in practice, nothing happens in the vicinity of this extreme form of holdup behavior: even in the absence of a signed contract, talented lawyers state that they renegotiate open terms after production, but refrain from renegotiating fixed remuneration.”  This is consistent with good faith negotiations, sometimes necessary in preliminary trade agreements that impede the renegotiation of fixed terms, but provide flexibility in negotiating open terms. Whether changes in the distribution of the excess transaction between the parties` deliberate investments in improving their alternative options may also be caused by exorogenous changes in markets and framework conditions. The Provisional Agreement therefore also provides for the means by which the parties can effectively allocate certain risks of a change in circumstances that would affect the distribution of the enterprise`s surplus. While it may be necessary to allow time to fulfill the terms of the contract, it may be helpful for the parties to assign certain risks earlier. A relevant example is a preliminary agreement in a loan commitment that links the interest rate to changes in the market interest rate while the parties negotiate other terms such as insurance, guarantees and restrictive covenants.
In fact, in a number of high-level Second Circuit cases, the application of pre-agreements was motivated by the allocation of interest rate risks and not by the protection of trust investments.  As explained in this article, in their preliminary agreement, the parties may seek to protect risk-sharing while allowing them to create value by continuing their contract negotiations […].