Heads of Terms and Letters of Intent

Whether our clients are engaging in mergers and acquisitions, investments, sales, or financing transactions in the US or in the UK, our advice is always to ensure that the key terms of the deal are agreed at the earlist possible stage and once an agreement is reached, those terms are enshrined in a Term Sheet, which will be signed by both parties.

Heads of terms in private M&A are also known as Letters of intent, Memoranda of Understanding and Heads of Agreement.

They are generally contained in a relatively short document that outlines the main terms that the parties have agreed.

Heads of terms evidence serious intent, and may have moral force, but are not automatically legally binding. They may be fully binding or partly binding or not binding at all – this is up to the parties to the document.

This will depend on the contents of the heads of terms, the parties’ intention (as evident from that document) and whatever particular circumstances can be taken into account in accordance with the rules for contract formation.

Heads of terms are useful for multiple purposes:

• Written confirmation of the main terms agreed in principle.
• Outline the timetable and obligations of the parties during the negotiations.
• Framework for certain preliminary legally binding clauses, such as confidentiality and exclusivity agreements.

Heads of terms are commonly entered into at the beginning of a transaction; after preliminary terms have been agreed and (usually) before detailed due diligence and the drafting of definitive agreements begins (which is where the parties will begin to incur significant costs).

The parties may enter into a series of heads of terms throughout the negotiations, particularly when negotiations are prolonged.

Attached are a few samples of Heads of Terms / Letters of Intent, to be used in different circumstances.

They are only suggestions and require a comprehensive understanding of your particular circumstances.

We would always recommend taking legal, financial and tax advice before executing any formal documentation.