Heads of terms

The following Commercial practice note provides comprehensive and up to date legal information covering:

  • Heads of terms
  • What are heads of terms?
  • Legally binding v non-legally binding
  • Determining whether heads of terms are legally binding
  • Subject to contract
  • Creating legally binding provisions
  • Consideration
  • Certainty
  • Duty to negotiate in good faith
  • Confidentiality
  • More...

Heads of terms

This Practice Note considers heads of terms (also known as a memorandum of understanding (MoU), letter of intent (LOI), comfort letter, pre-contract protocol, term sheet or heads of agreement) in the context of commercial deals. It considers what heads of terms are, how the courts determine whether heads of terms are legally binding, the commonly used phrase ‘subject to contract’, creating legally binding provisions, the duty to negotiate in good faith, and provisions typically included. It also considers which terms are usually intended to be legally binding and provides drafting advice on what to consider and include. This Practice Note also considers how to supersede the heads of terms in the final contract.

For heads of terms for a commercial deal and drafting notes, see Precedent: Heads of terms—commercial contracts.

What are heads of terms?

Heads of terms are a set of documented principles that typically precede substantive contract negotiations and the ultimate signed formal contract.

Heads of terms provide the broad outline of the high-level commercial deal agreed between the parties to a proposed contract while the finer points are outstanding. They will often provide a useful road map for the final contract with the parties regarding them as being morally binding (to the extent that they are not legally binding) so that the points within the heads of terms cannot be materially renegotiated. Heads

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