(ii) Background clauses (preamble)

Overview. Following the title and parties block but before the body text, most contracts contain a group of paragraphs addressing a few key characteristics of the agreement, the related transaction or the parties’ businesses, and they help the reader understand the background before digging into the definitions section. This part is also known as the preamble, recitals or whereas provisions. 

Best practices. The information provided in the background clauses should be limited to intentions, desires or statements of fact. It is customary to limit these statements to subject matters that may result in the validity or enforceability of the contract being directly affected. Additionally, background-clauses should never contain any obligations, conditions, warranties, policy rules or duties.

Types of background clauses. The recitals give background information about the parties and about the context of the agreement, and they introduce the agreement itself. There are several kinds of whereas clauses:

  • Party-related recitals: one or more whereas clauses can reflect the relevant business activities of each party.
  • Context or background recitals: these describe the events or circumstances that led to the transaction. They can be seen as an extension of or elaboration on the contract title – for example, explaining particularities of a sale, specifying the patents or trademarks of a licence, or clarifying why a preceding agreement is amended and restated. Such background recitals may well touch in broad terms upon the purpose of the transaction that the parties seek to accomplish.
  • Compliance-related recitals: in one or more whereas provisions, the parties may want to express that those concerned have complied with certain requirements or prerequisites for entering into the agreement. For example, a whereas clause may express that an external party has approved the transaction or that those concerned have complied with regulatory requirements or works council regulations.
  • Transaction-structure related recitals: in non-standard, complex transactions, it is sometimes unavoidable to explain the various steps taken pursuant to the contracts (for instance when a sequence of events is of particular importance).
  • Related-transaction recitals: a preamble might include one or more recitals regarding agreements being entered into at the same time.
  • A step-up recital: many drafters express a general intention stating that the parties desire to reflect the preceding considerations in writing. In fact, such a lead-in is redundant and therefore unnecessary.