What is a Heads of Terms?
A Heads of Terms is a document containing information about the commitment of one party to do business with another party. It contains all the information regarding the deal, which both parties have agreed to do business in the near future. It is basically a non-binding document that summarizes the results of negotiations between two parties in order to facilitate the future formation of a contract.
A Heads of Terms, also known as a Letter of Intent or Memorandum of Understanding, is useful when parties are not ready to sign a contract but want to record the progress of initial negotiations and issues that need resolution. It contains information such as the main content of the future contract and the time when the contract will be signed. A Memorandum of Understanding may also contain details about how further negotiations should be conducted and any exclusivity period during which the parties are precluded from negotiating with other parties, and has the effect of pushing forward contract negotiations.
How do you write a Heads of Terms?
A proper Heads of Terms should address the key points that need to be resolved before entering into a contract. The details about the parties and commitment should be clearly mentioned in order to minimize the risk of disagreements in the future.
What is the purpose of a Heads of Terms?
There are many types of Heads of Terms: these include an intent to purchase; an intent to return to work; an intent for admission; an intent to enter into a contract. A Heads of Terms outline all the terms of an agreement made before entering into a contract. It should address pricing, conditions, payment deadlines, obligations of each party, the date for the signing of the proposed agreement, and the date of memorandum of understanding. It records all the points that need resolution before the contract which can save time and money for both parties involved.
Are Heads of Terms legally binding?
Strictly speaking, a Heads of Terms is not legally binding because it is a document that reflects the intention of two parties for doing business together if everything goes as per the plan.
Are Heads of Term Agreement enforceable?
Heads of terms agreement can be legally enforceable if the involved parties intend to keep it so. However, it is not uncommon to find words such as ‘subject to contract’ in these agreements. This shows that the intention of the parties in the agreement is non-binding.
To steer clear of any disputes which could arise, it is preferable for the parties to specify whether or not they intend to be legally bound by its terms.
Conclusion
A Heads of Terms is a document that reflects the intention of involved parties to show their commitment towards a common goal. As it has many types, it might be slightly different according to the nature of the document but the purpose of writing it is the same in almost every case. A Heads of Terms helps individuals and businesses to reflect their interest in certain areas which could result in a mutually beneficial relationship.
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Along with this document, make sure you see these other templates in our library:
- Shareholder Agreement
- Memorandum of Understanding (MOU)
- Letter of Intent
- Share Appreciation Rights Plan
- Share Option Plan
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