Heads of Terms

Heads of Terms: Agree the Key Points of a Deal in Writing

Heads of terms set out the main commercial points two parties have agreed in principle before a full contract is drafted. They record the deal, the price, who does what, the timetable and any conditions, so everyone, including the lawyers who will draft the final agreement, starts from the same page. Robot Lawyer drafts your heads of terms from your answers, makes clear which parts are binding and which are not, and frames them under the law of the country or state you choose. On the Verified plan, a legal professional checks them before you share them.

They are also known as a term sheet, a heads of agreement, a letter of intent or a memorandum of understanding.

CONTENTS

What Are Heads of Terms?

Heads of terms are a short, structured summary of a proposed deal. They are usually signed early in negotiations, once the main points are agreed, and before time and money are spent on due diligence and a full contract.

Most heads of terms are expressly not legally binding, apart from a few clauses that protect both sides while talks continue, such as confidentiality, exclusivity, costs and governing law. Getting that split right is one of the most important parts of the document. If it is unclear, a court may decide that more of the document is binding than either side intended.

When Should You Use Heads of Terms?

• Selling or buying a business
  Record the price, what is included, the timetable and conditions such as due diligence.
• Investment in a company
  Set out the amount, the valuation, the shares to be issued and investor rights before the subscription documents are drafted.
• Joint ventures and partnerships
  Agree each party's contribution, control and profit share in principle.
• Commercial property deals
  Summarise the rent, term, break clauses and repairing obligations before the lease is drafted.
• Major supply or service arrangements
  Capture the scope, pricing and service levels before negotiating the full contract.

What's Included in Your Heads of Terms?

• The parties
  Full names and addresses, with company registered offices.
• The proposed deal
  A clear description of the transaction.
• Price and payment
  The agreed price or other payment, and how and when it will be paid.
• Each party's obligations
  What each party will do or provide under the deal.
• Conditions
  Anything that must happen before the final agreement is signed, such as due diligence, finance or consents.
• Warranties
  Any key assurances either party expects to give in the final agreement.
• Confidentiality and exclusivity
  Optional protections while negotiations continue, for the period you choose.
• Non-solicitation
  An optional promise not to poach the other party's staff or customers for a set period.
• Costs
  Who pays the costs of negotiating and preparing the deal.
• Timetable
  The target date for signing the final agreement.
• Binding and non-binding terms
  A clear clause saying which parts are legally binding.
• Governing law
  The country or state whose law applies.

Binding or Non-Binding?

You can choose from three approaches:

• Non-binding except key protections (most common)
  The commercial terms are not binding, but confidentiality, exclusivity, costs and governing law are. Either side can walk away, but must keep information confidential and respect any exclusivity period.
• Entirely non-binding
  A record of intent only. Useful for early discussions, but it gives no protection if the other side shares your information or negotiates with someone else.
• Fully binding
  The heads of terms become a contract. This is rare and risky, because important terms are usually still to be agreed. Take advice before choosing this.

Whatever you choose, your heads of terms say it clearly, and the final agreement should replace them once it is signed.

Example Heads of Terms Extract

This shortened example shows the structure. Your Robot Lawyer heads of terms are written in full from your own answers.

1. Parties: [First party] of [address] and [Second party] of [address].

2. Proposed deal: The sale of [business or asset] by [first party] to [second party].

3. Price: £[amount], payable [on completion / in instalments].

4. Conditions: Completion is subject to satisfactory due diligence and [finance].

5. Status: Apart from clauses [confidentiality, exclusivity, costs and governing law], these heads of terms are not legally binding.

How It Works on Robot Lawyer

1. Answer the questions
   Tell us about the parties, the deal, the price, each side's obligations and which protections you want.
2. Generate your heads of terms
   We draft clear, well-structured heads of terms with the binding and non-binding parts clearly separated.
3. Get it verified
   On the Verified plan, a qualified legal professional checks the document within 24 hours and makes amendments where needed. See how our documents are verified.
4. Share, agree and sign
   Send the heads of terms to the other party, agree any changes and sign them before the final agreement is drafted.

Robot Lawyer is a subscription. The Essentials plan is £13.99 a month, and the Verified plan, which includes verification of your finished document by a legal professional, is £24.99 a month. Both start with a 7-day free trial. See our pricing.

Heads of Terms FAQs

Are heads of terms legally binding?

Usually not, apart from specific clauses such as confidentiality, exclusivity, costs and governing law. Your document says clearly which parts are binding. If heads of terms don't say this, a court will look at the wording and the circumstances, so it is important to be explicit.

What is the difference between heads of terms and a contract?

Heads of terms summarise the main points agreed in principle. The contract is the full, detailed and binding agreement that follows, with warranties, indemnities, termination rights and everything else the deal needs.

Do heads of terms need to be signed?

It is good practice for both parties to sign, to show the terms are agreed and to make the binding clauses enforceable. Witnessing is not usually needed, but your document can include it if you ask.

What is an exclusivity period?

A period, often a few weeks or months, during which the seller or other party agrees not to negotiate the same deal with anyone else. It gives the buyer or investor time to carry out due diligence without competition.

Can I use heads of terms outside the UK?

Yes. Your heads of terms are drafted under the law of the country or state you choose. Our lawyers are qualified in England and Wales and check documents for good practice, clear formatting and the law of England and Wales. They are not qualified in other countries' law, so if your heads of terms are governed by another country's law, we recommend having a local lawyer check them too.

Create Verified Heads of Terms Online

Agree the key points of your deal in writing in minutes. Related documents: Non-Disclosure Agreement, Share Purchase Agreement and Lease Letter of Intent.