Ask DG: What are Heads of Terms and do I Need Them?

October 21, 2021

 

In summary, heads of terms are used to outline the key terms of the deal agreed between a buyer and a seller. They are not essential to the deal, and deciding to use heads of terms is purely a matter of choice for each party involved.

Heads of terms are used for a number of purposes:

  • As written confirmation of the main terms that have been agreed in principle

  • To outline the timetable and obligations of the parties during negotiations

  • As a framework for any preliminary legally binding clauses, such as an exclusivity agreement

As with anything, there are pros and cons to using them. It can be useful to have the terms of the deal agreed at the outset, to avoid misunderstandings and provide a useful road map of the steps to be taken on the way to signing a formal agreement, particularly in more complex transactions.

However, if negotiation over the terms begins to stall over minor details, you should consider simply moving on to negotiate the terms of the formal agreement and deal with the detail at that stage. You should also be careful to check that signing heads of terms does not create a legally binding agreement and obligations which you are not yet ready to undertake.

If using heads of terms, having them drafted by a solicitor who will ensure they are tightly drafted will avoid any confusion and leave no room for ambiguity in respect of whether or not they are binding.

For a free, no obligation conversation about how we can help you with the above, please contact Emily Shingler on eshingler@darwingray.com / 02920829102

 

 

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