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How to make Heads of terms

Heads of terms set out the intentions between two businesses to create an agreement, providing a basis for future binding contractual terms. It can be drafted as a letter between two businesses known as a letter of intent, rather than a contract. However, the effect of these two documents is the same.

Record proposed terms during negotiations between two parties using this heads of terms agreement template. Heads of terms are not usually legally binding agreements but are useful when recording what is to be included in a proposed agreement and what is not. These heads of agreement have the option to include legally binding obligations of confidentiality, exclusivity and non-solicitation. 

Heads of terms can be viewed as an agreement in principle, creating a framework for the contractual agreement and adding instructions. 

Use these heads of terms: 

  • if you are interested in signing an agreement with another business
  • to formalise ongoing discussions with another business
  • to record what has been agreed, before a legally enforceable agreement is drawn up
  • to protect your valuable business information and key employees

This heads of agreement covers:

  • details of the proposed agreement
  • target completion date
  • pre-conditions to the proposed agreement
  • the parties' key obligations
  • options to include legally binding obligations of confidentiality, exclusivity and non-solicitation

You will need heads of terms in order to record business negotiations and discussions where the outline and details of the terms of a future agreement have been agreed. You can use this document during ongoing negotiations and once the negotiations are complete to ensure that both parties understand their obligations.

Heads of terms are a good way of adding clarity and outlining the intentions of both parties during the early stages of negotiations.

You can use this heads of terms document to record key terms agreed between both parties for any proposed agreement. These include joint venture agreements, services agreements, outsourcing agreements, asset purchase agreements or share purchase agreements.

Some of the terms will be considered legally binding by the court. These include:

  • Confidentiality provisions - where the parties signed a separate confidentiality agreement, the agreement will create legally enforceable obligations of confidentiality between the parties.
  • Exclusivity provisions - which prevents the parties from negotiating with anyone else for some period of time.
  • Non-solicitation provisions - which prevents the parties from poaching each other's employees and customers.

However, the time and scope of the provisions (non-solicitation and confidentiality) must be reasonable. In this document, you can choose the period of time for both exclusivity and non-solicitation, which varies from 30 to 60 days for exclusivity and 1 to 12 months for non-solicitation.

Preconditions are conditions that must be met by either party before the finalised agreement can take effect. In this document, you may require the other party to fulfil some conditions such as submitting certain key documents (eg safety certificates), or you may need the approval of the shareholders to enter into this agreement.

This agreement can be terminated at any time by giving notice to the other party.

The remedies available for non-compliance apply only to breaches for legally binding terms such as a non-solicitation or exclusivity provision. The remedies will be adequate to the breach and as specified in this agreement may include:

  • an injunction (which may stop the person or a business from beginning or continuing an action invading the legal right of the other party)
  • specific performance
  • other equitable reliefs, or
  • any other remedy such as damages

Ask a lawyer for advice:

  • regarding a legally enforceable agreement if performance of the agreement is about to begin or has already begun
  • if one of the parties is based outside of England, Wales or Scotland

Other names for Heads of terms

Term sheet, Heads of agreement, HOT.