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.
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!