Heads of terms (also known as heads of agreement) set out the main terms that parties have agreed. They are not legally binding but they do show an intention to come to an agreement. Â
The reason that heads of terms are used are: Â
- To confirm the proposed terms of purchase Â
- To outline the timetable of the purchase and the obligations of the parties Â
- In order to assist in drafting the contract of sale.
Generally the heads of terms should cover only deal terms for example price, payment schedule, any earn outs etc. But should not include what are known as drafting points, basically the drafting points are the legal nitty gritty that makes up the agreement.