Heads of terms

Heads of terms should be set out by the parties looking to enter into a deal or transaction. Heads of terms are also known as a letters of intent or  memoranda of understanding.

Although this document is not legally binding, it records the future intentions of parties wishing to take part in a transaction but does not enforce obligations on them.

Heads of terms are set out to allow both parties to see what they can expect the basic terms of a contract to be before the finer details are eventually negotiated.

Parties usually make their general intentions known at the outset via heads of terms to avoid the cost of legal fees pertaining to discussions on major points of the transaction, leaving each party to focus on the finer points of the details separately.

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Heads of terms will usually cover these basic features and major points:

  • The Price
  • The Identities  of the Parties
  • The Fundamental Purpose of the Contract
  • The Terms of the Contract/transaction
  • Confidentiality Agreements
  • Any protection for the parties in the event of a failed transaction
  • Any unusual provisions which are key to whether a party would proceed with the transaction or not

In addition, heads of terms can also highlight any major issues and clarify any irreconcilable differences or misunderstandings between the parties should they occur. It is far better to do this at the outset, rather than during the course of a transaction when many hundreds/ thousands of pounds of fees and expenditure may have already been incurred.

Heads of terms help to create a positive attitude and establish a confident relationship between the parties, as it gives both parties the chance to establish a moral obligation to abide by the contract and the terms outlined.

In addition to these benefits, these agreements may contain ‘lock out’ clauses which are legally binding.  These lock out clauses stop the parties concerned from negotiating with any other party or person for a fixed amount of time. This is to stop either party from feeling pressured into going ahead with a transaction for fear that the other party is negotiating with someone else regarding the transaction.

Our commercial property team has extensive experience of drafting and reviewing heads of terms, letters of intent and memorandum of understanding. We can negotiate and draft heads of terms agreements regarding any kind of commercial contract or business transaction. The legal ramifications of heads of terms contracts can be difficult to understand, and as such you need the help of a dedicated and experienced law firm to ensure your best interests are protected.

For more information on heads of terms, contact a member of our specialist team on 0203 816 9303.

Alternatively please complete our online enquiry form and a member of the team will contact you.

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