Heads of terms

Heads of terms are a document setting out the main terms of a commercial agreement reached between parties in a transaction. Heads of terms can also be known as a letters of intent or memoranda of understanding.

Following the parties initial negotiations, heads of terms are prepared to set out the agreed basic terms of a contract or commercial lease before the finer details are negotiated.

Although heads of terms are usually not legally binding, the document records the future intentions of parties wishing to take part in a transaction but does not enforce obligations on them.

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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 or irreconcilable differences/misunderstandings between the parties. These issues can then be resolved at an early stage. It is far better to do this at the outset, rather than during the course of a transaction when fees and expenditure may have been incurred.

In addition to these benefits, these agreements may contain ‘lock out’ clauses which can be 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 documents can be difficult to understand, and as such if you are about to enter into a commercial property transaction and need the help of a dedicated and experienced law firm to ensure your best interests are protected, we are able to assist.

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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