Heads of Agreement

Heads of terms or heads of agreement are usually contained in a document which is usually quite short and sets out the main terms that the parties have agreed. They cannot legally compel the parties to execute the deal but is evidence of serious intent. There is no standard document but it is important to have a clause “These heads of terms are not exhaustive and are not, and are not intended to be, legally binding except as specifically set out below”.

Heads of terms are used for a number of purposes:

  • To confirm the terms of purchase.
  • To outline the timetable and obligations of the parties.
  • As a framework to lock the parties in and these would be legally binding.

As well as having the main terms ie what you are buying ie shares or assets and the price, you would also state that the proposed purchase will be conditional on various items for example “the Buyer conducting, and being satisfied with the results of, financial, legal, taxation and commercial investigations into the Business and its assets and liabilities and any other reports and investigations that the Buyer decides are necessary”.

As a general rule, heads should cover deal points, rather than drafting ones. It is often quite difficult to distinguish but do not turn the negotiation of the heads into rehearsing the final agreement. Only discuss the commercial deal in principle. Let the lawyers argue over the fine print!

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