Heads of Agreement, Heads of Terms

In a typical negotiation, key terms are resolved in discussion, such a price, delivery, assets conveyed, term, etc., and are recorded in what are known as the “heads of agreement” or “heads of terms,” which often will be in the form of an MOU. The heads of agreement form the foundation around which legal advisors will draft contracts adding, it is to be hoped, non-controversial boiler plate.

It is important to discuss with appropriate counsel what issues the heads of agreement should cover before negotiation, as missing an issue may mean that negotiations re-open to resolve it. In some jurisdictions and circumstances a Heads of Terms can be treated as a binding agreement, especially if the parties act on the negotiated terms without agreeing a definitive final agreement. If the parties do not intend to allow the Heads of terms to become a contract, they should be careful to say so in these documents, for example, by including the phrase ‘subject to contract‘ or an analogous rider.