The Price of a ‘Promise’

Heads of Terms, letters of intent, term sheets, whatever you choose to call them are the documents that outline the key terms of a deal agreed between the parties in principle.

Generally the heads of terms will be non-binding with a few sections intended to be binding (confidentiality for e.g.) However, just because a document is not legally binding doesn’t mean that you should not ensure it is carefully drafted and thought out. A less well thought out heads of terms can be difficult to move from as the parties usually feel a moral (if not legal) commitment to observe the key terms agreed. Later on when the parties are drafting the main contract, negotiations can turn difficult as there may be feeling from one party that the other party is reneging on earlier commitments. Don’t enter into informal agreements or heads of terms lightly without getting all the information that you will need to ensure that you can proceed with confidence on your promises.

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