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Heads of terms provide a useful point of reference to both parties, but should not be confused with the main contract.

While you will ultimately wish to negotiate and agree on the written terms for your main contract as soon as possible, there are a few reasons why reaching agreement can be helpful with your negotiations. Agreeing heads of terms can:

  • provide a useful point of reference to both parties;
  • help to focus the parties on what terms need to be agreed;
  • show the parties’ commitment to going ahead with the deal; and
  • reduce the legal costs of drafting the contract by ensuring that terms have been fully negotiated and recorded.

There have been cases where the courts have found parties to be in a legally binding contractual relationship despite only having agreed heads of terms. This was due to the parties having already started performing the terms of their main contract before written terms for the main contract had been agreed. The lesson to be learnt from this is to keep any agreed heads of terms under review, particularly if your contract negotiations are likely to be lengthy. You should also aim to conclude written terms for your main contract as soon as possible and do not be tempted to start performing the main contract until the terms of the main agreement have been agreed.

Heads of terms template

If you do not use heads of terms, or you are thinking of revising your current heads of terms document, you can download our free heads of terms template and guidance.

Our heads of terms template will provide you with key provisions to consider when agreeing to heads of terms.

Heads of terms are not generally written to be legally binding on the parties, and our heads of terms template is no different. However, it does contain a binding duty of confidentiality.

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