Why are Heads of Terms a Useful Tool when Buying and Selling Businesses?

February 14, 2022

 

By Emily Shingler

Heads of terms are often used to outline the key terms of a deal agreed between a buyer and a seller of a business. Whilst they are not legally required, they do have certain advantages.

The main benefit of using heads of terms is that is allows the parties to a deal an opportunity, early on during the negotiations, to iron out key commercial issues and avoid misunderstandings about the terms of the deal. This should hopefully reduce the chance of the negotiations becoming protracted, or worse still stalling at a late stage, causing a waste of time and money.

Heads of terms will typically contain some or all of the following provisions:

  • details of the main terms that have been agreed

  • a timetable for the progression and completion of the deal

  • any obligations of the parties during negotiations

  • the parties’ obligations in relation to confidentiality regarding any shared business information

  • any period of exclusivity

  • provisions in relation to the parties’ costs of the deal

Whilst the majority of the contents of heads of terms are not usually legally binding and will be subject to a detailed sale agreement, some provisions may be legally binding e.g. confidentiality and also exclusivity. It is important to be clear about what is legally binding and what is not.

Unless the parties are experienced in business, it may be useful to have the draft heads of terms checked by a lawyer, to ensure that they correctly reflect the intention of the parties.

Even if heads of terms not legally binding, from a commercial perspective, it can sometimes be difficult to renegotiate terms that have been agreed in heads.

If you have any queries in relation to heads of terms or corporate deals generally, please contact Emily Shingler on eshingler@darwingray.com or 02920 829 102.

 

 


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