Heads of Terms (“HOT”) are essential in any transaction. The parties must outline what they intend to buy and what they intend to sell in a private limited company. I would always insist on including legally binding provisions relating to exclusivity of negotiating and costs and must be connected and supported by a confidentiality letter. I like to explain to clients that they are useful as that create certainty and will ensure any misunderstandings are avoided. If there are issues during the HOT then I would suspect significant problems along the way when the actual deal is about to done.
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HOT are generally signed at the beginning of the deal, after you have agreed preliminary terms, but before commencing due diligence when the costs really kick in! I am often asked if they are legally binding and the answer is no!
