Confirming ‘heads of terms’ - the key points of a potential deal - before the more formal negotiating begins is a sensible and risk-limiting decision. But only with expert legal advice, says corporate solicitor Tom Bodkin, of Borneo Martell Turner Coulston Solicitors.
……………………………….
Published in association with
IF INFORMAL discussions on a new business arrangement are looking promising, a key step may be the preparation of a document to outline the ‘heads of terms’.
This document records, in a series of relatively brief bullet points, the key commercial terms that have been agreed between two (or more) businesses relating to a newly proposed deal or transaction.
“Agreeing heads of terms is particularly useful for complex or bespoke business contracts. While it may be tempting to do so without speaking to your lawyer, this can be a risky approach,’ said Tom Bodkin, a partner in the corporate and commercial team with Northampton law firm Borneo Martell Turner Coulston.
Tom highlights some of the key considerations when agreeing heads of terms.
What should your heads of terms include?
Think of the heads of terms document as a kind of aide memoire to set out the key commercial terms that have been thrashed out and agreed during pre-contract meetings and discussions.
The document helps to ensure that those points of agreement are committed to paper so they are not forgotten or overlooked and so that neither business can later row back on something that was already agreed in principle.
Therefore, the heads of terms document should record the fundamental business and monetary terms.
It is not concerned with legal jargon or routine, standard contract clauses. That is for the lawyers to agree further down the line.
The following elements are commonly found in a set of heads of terms:
- Description of the transaction;
- Description of the goods or services being bought and sold;
- Termination rights;
- Pricing structure;
- Exclusivity;
- Territory;
- Restrictions, such as a list of reserved or protected clients.
Are heads of terms legally binding?
A heads of terms document is not usually considered to be legally binding. However there can be exceptions to this, depending on the intent and language employed.
If you do not wish this document to be legally binding, it is wise to state this upfront by including a bullet point to that effect and by marking the document as being ‘subject to contract’.
HOW WE CAN HELP
IF YOU are in the early stages of discussing an important deal, our commercial lawyers can assist you in drafting your heads of terms or providing background legal advice on key issues that will help to shape the document.
If your negotiations are more advanced and you already have a draft or agreed set of heads of terms, we can take a look and advise on them and negotiate any finer points of detail with the other lawyers.
We can then proceed to prepare and advise you on the main contract and ensure that your interests are well looked after by expert hands.
For an informal conversation on any contractual matter, contact the Borneo Martell Turner Coulston commercial team on 01604 622101 or email
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
……………………………….
Stay connected with Northamptonshire business through Business Times. Join our exclusive community for the latest news, insights, updates, features and thought leadership.
Stay informed – subscribe now at bit.ly/437DsSm. Unsubscribe at any time.
