MAKE YOUR FREE Heads of Terms
What we'll cover
What are Heads of Terms?
When should I use Heads of Terms?
Use these Heads of Terms:
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if you are interested in signing an agreement with another business
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to formalise ongoing discussions with another business
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to record what has been agreed, before a legally enforceable agreement is drawn up
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to protect your valuable business information and key employees during negotiations
Sample Heads of Terms
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HEADS OF TERMS
This heads of terms is made on the date of last signature below between:
SUBJECT TO CONTRACT
Background
- The First Party and the Second Party are interested in entering into (the Proposed Agreement).
- This heads of terms sets out the principal terms and conditions upon which the Parties agree to enter into the Proposed Agreement.
Status of Heads of Terms
- The terms in this heads of terms are not exhaustive and are expressly 'subject to contract' until a final written agreement has been entered into. The terms are not intended to be legally binding between the Parties except where specifically stated.
Timescale and Notice to Terminate
- The Parties agree to negotiate in good faith with a view to signing the final written Proposed Agreement on or before .
- Either Party may at any time, by giving notice to the other in writing, terminate negotiations for the Proposed Agreement, without having to give any reasons for doing so.
- The Party giving notice will not incur any financial liability to any other Party, unless it has breached a legally binding obligation of this heads of terms as set out below.
- Upon giving notice of termination, each Party must:
- return all of the other party's equipment and materials;
- return or destroy (as directed in writing by the other party) any documents, handbooks, CD-ROMs or DVDs, software or other information or data provided to it by the other party.
Essential Pre-Conditions to an Agreement
- Any Proposed Agreement between the Parties is conditional upon:
- the Parties negotiating, drafting and agreeing the satisfactory terms of the Proposed Agreement governed by English and Welsh law;
- the approval of and consent to the Proposed Agreement being given by (i) the Parties (including any necessary internal, shareholder, board of directors, or partner consents, as appropriate) and (ii) any relevant third party agencies including (without limitation) any tax, regulatory, export, certification or competition authorities. Any such approvals and consents shall remain in full force and effect until the Agreement is signed.
Basis of Proposed Agreement
- Under the Proposed Agreement, the First Party's primary obligations are:
- Under the Proposed Agreement, the Second Party's primary obligations are:
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Costs
- This paragraph is legally binding.
- Each Party is responsible for its own costs in connection with the Proposed Agreement, whether or not it proceeds (including, without limitation, the preparation and negotiation of this heads of terms, the negotiation and drafting of the Proposed Agreement and any documents contemplated by it).
Other Agreements
- This paragraph is legally binding.
- Where they exist, any agreements between the parties will continue to apply to this heads of terms and shall remain in full force and effect and are not affected by anything in this heads of terms .
Rights and Remedies
- This paragraph is legally binding.
- Each Party agrees that damages alone would not be an adequate remedy for any breach of a legally binding obligation by the other Party. In such an event, the non-defaulting Party shall be entitled to the remedies of an injunction, specific performance or other equitable relief in addition to any other remedy including damages.
- This heads of terms is for the benefit of the parties to it and is not intended to benefit, or be enforceable by, anyone else.
Governing Law and Jurisdiction
- This paragraph is legally binding.
- The agreement constituted by this heads of terms shall be governed by the laws of England and Wales and the courts of England and Wales shall have exclusive jurisdiction for all matters arising under it.
Commencement and Signature
- The agreement in this heads of terms will remain in effect until superseded by the Proposed Agreement, notice to terminate negotiations or other event equivalent to termination of the agreement in this heads of terms (including the insolvency of one of the Parties or the performance of the obligations set out above (Basis of Proposed Agreement)).
The Parties have signed this heads of terms on the date(s) below:
About Heads of Terms
Learn more about making your Heads of Terms
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How to make your Heads of Terms
Making your Heads of Terms online is simple. Just answer a few questions and Rocket Lawyer will build your document for you. When you have all the information about the intended contract prepared in advance, creating your document is a quick and easy process.
You’ll need the following information:
Parties and background
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What are the parties’ details? You’ll need each businesses’:
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Address.
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Signatory, if it’s a company or a partnership (ie the person who will sign the document on the company’s or partnership’s behalf).
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Company number, if it’s a company.
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Have the parties already entered into a Confidentiality agreement? If so, when was it signed?
The proposed contract
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What type of agreement are the parties proposing they enter into (eg a Services agreement or a Share purchase agreement)?
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What are each party’s key duties under the proposed agreement (eg to provide services or to contribute a particular activity towards a joint venture)?
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What pricing or fee structure will apply under the proposed agreement (eg the price paid per hour in exchange for services, or the purchase price of the shareholding)?
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Are there any preconditions that must be met before the proposed contract is signed? If so, what are they?
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What, if any, other terms of the proposed agreement have the parties agreed on?
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By which date do the parties intend to form the proposed agreement?
Legally binding clauses of the Heads of Terms
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Do you want to include an exclusivity clause? If so, how long will it apply for (ie 30, 45, or 60 days from the date on which the Heads of Terms are signed)?
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Do you want to include a non-solicitation clause? If so, how long will it apply for (ie how many months from the date on which the Heads of Terms are signed)?
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Do you want to include a confidentiality clause? If so:
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How long will it apply for (ie how many years from the date on which the Heads of Terms are signed)?
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If either party is based in Scotland, will the Heads of Terms agreement be governed by the laws of England and Wales or the laws of Scotland?
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Common terms in Heads of Terms
Heads of Terms set out the basis of a proposed contract that two parties intend to form. To do this, this Heads of Terms template includes sections covering:
The parties
The document starts by identifying exactly who the two parties to the Heads of Terms agreement are.
Subject to contract
The main body of the document is preceded by the words ‘Subject to Contract’. This indicates the parties’ intention not to be legally bound by the contents of the document, except where explicitly stated otherwise (eg in an exclusivity clause, if included).
Background
This introductory section identifies the purpose of the document (ie setting out the intended terms of the proposed agreement) and specifies the type of agreement that the parties are interested in forming.
Status of Heads of Terms
This section clarifies the intention that the terms contained in this document are not to be legally binding, except where otherwise specified. It further notes that the terms are non-exhaustive (ie the parties may add more terms when making the final contract).
Timescale and notice to terminate
This section sets out the parties’ rights and obligations in relation to the formation of the proposed contract. For example, it notes their commitment to negotiate in good faith and their intention to form the contract by a certain date. It further notes when and how either party can end negotiations and what must happen if they do so.
Essential pre-conditions to an agreement
The requirements that must be met in order for the proposed agreement to be formed are set out here. The Heads of Terms will always include the requirement that the parties agree on the final contractual terms and consent to the contract. You can also include any other appropriate preconditions, for example, a requirement for the parties to undertake due diligence.
Basis of proposed agreement
This is the core section of the Heads of Terms. It sets out the terms that the parties have agreed upon at this stage of negotiations, including each party’s primary obligations under the proposed contract (eg to provide services, deliver assets, or contribute in a certain way to a joint venture). You should also include the agreed purchase price or other fee structure details that have been agreed on. Lastly, you can include any other terms that have been agreed on.
Confidentiality
This is one of the legally binding sections of the Heads of Terms. If you choose to include a confidentiality clause, this section will set out an obligation on both parties not to disclose or use each other’s confidential information for a certain period of time after the Heads of Terms are signed. It provides for exceptions in certain circumstances, for example, certain disclosures or uses that are required in relation to the negotiations.
Regardless of whether you choose to include a full confidentiality clause, if the parties have already formed a Confidentiality agreement, this section will contain a statement identifying this and highlighting that it still applies.
Non-solicitation of employees and customers
This section is legally binding, should you choose to include it. In it, both parties promise not to solicit or attempt to solicit (ie attempt to hire) any of the other party’s employees (who perform services relevant to the proposed agreement) or customers (who receive goods or services relevant to the proposed agreement), for a certain period of time.
Exclusivity
This section is legally binding, should you choose to include it. It contains promises by the parties not to seek or engage in relevant negotiations with third parties (eg competitors of one of the parties to the Heads of Terms) for a certain period of time. The parties also promise to end any such negotiations that are already taking place, as soon as they sign the Heads of Terms.
Costs
This legally binding section states that both parties are responsible for their own costs in relation to the proposed agreement and its negotiations.
Other agreements
This legally binding section asserts that the Heads of Terms will not affect any existing agreements in place between the parties, which will remain in place.
Rights and remedies
This legally binding section gives either party the right to seek certain remedies (eg injunctions or orders for specific performance) above and beyond damages if the other party breaches a legal obligation contained in the Heads of Terms.
Governing law and jurisdiction
This section explains which country’s legal system must be used to resolve any disputes (ie the agreement’s jurisdiction). This is necessary as the legal systems of England and Wales and of Scotland are different.
Commencement and signature
This section sets out when this Heads of Terms agreement will cease to be effective, including when either:
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the proposed agreement is signed, which will supersede the Heads of Terms
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one party gives notice to end negotiations, or
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one of the parties becomes insolvent
Signatures
The Heads of Terms ends with spaces for both parties (or their signatories) to sign the agreement.
If you want your Heads of Terms to include further or more detailed provisions, you can edit your document. However, if you do this, you may want a lawyer to review the document for you (or to make the changes for you) to make sure that your modified Heads of Terms comply with all relevant laws and meet your specific needs. Use Rocket Lawyer’s Ask a lawyer service for assistance.
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Legal tips for businesses
Be aware of which parts of the Heads of Terms are legally binding and which are not
The whole point of Heads of Terms is to consolidate and record agreed terms during negotiations before a final, legally binding contract is made. This helps the contract negotiation progress in a clear and orderly manner. It also means that you can return to an agreed term to renegotiate it if, for example, something unexpected comes to light during due diligence investigations. However, Heads of Terms documents usually also contain important legally binding provisions that ensure that both parties’ resources and the investments they’re making in the negotiation process are protected. The sections of this Heads of Terms agreement that are intended to be legally binding are clearly marked as such.
Understand when to seek advice from a lawyer
In some circumstances, it’s good practice to Ask a lawyer for advice to ensure that you’re complying with the law and that you are well protected from risks. You should consider asking for advice if:
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you want to create a fully legally enforceable agreement straight away
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performance of the agreement (eg service provision) is about to begin or has already begun
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one of the parties is based outside of England, Wales and Scotland
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Heads of Terms FAQs
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What is included in Heads of Terms?
This Heads of Terms template covers:
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details of the proposed agreement
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the target completion date (ie the date by which the proposed contract should be formed)
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preconditions for the proposed agreement
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the terms the parties have agreed on, including fees or payment and the parties' key obligations
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options to include legally binding obligations of confidentiality, exclusivity, and non-solicitation
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Why do I need Heads of Terms?
You will need Heads of Terms if you’re in negotiations and discussions with another business and you want to outline the agreed terms of your intended future contract. You can use this document during ongoing negotiations and once the negotiations are complete to ensure that both parties understand their obligations.
There’s no legal requirement to create Heads of Terms, but doing so is a good way to add clarity and outline the intentions of both parties during the early stages of negotiations. This can help avoid confusion, arguments, and time-wasting down the line.
For more information, read Letters of intent.
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What kinds of proposed contracts can these Heads of Terms be used for?
This Heads of Terms document can be used to record key agreed terms for almost any proposed agreement. Common types of agreement that Heads of Terms are used for include:
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Are Heads of Terms legally binding?
Heads of Terms as a whole are not intended to be legally binding. However, some of the terms within them are intended to be legally binding and will generally be upheld by a court, if required. You can choose whether or not to include these terms in your Heads of Terms. These terms include:
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confidentiality provisions - the parties agree not to disclose each other’s confidential information (eg business plans, customers, market opportunities, or trade secrets) for a certain period of time, except in certain circumstances. If a separate Confidentiality agreement has already been signed, this is noted and it remains in effect
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exclusivity provisions - these prevent the parties from negotiating with any other parties (ie third parties) on matters relevant to the proposed agreement, for a specified period of time
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non-solicitation provisions - preventing the parties from attempting to take each other's employees and customers (of relevant products) for a specified period of time
The duration and scope of these provisions must be reasonable. In this template, you can choose the period of time for which the exclusivity, confidentiality, and non-solicitation clauses will apply. Durations vary from 30 to 60 days for exclusivity, 1 to 5 years for confidentiality, and 1 to 12 months for non-solicitation. If you’re not sure what’s reasonable in your situation, you can Ask a lawyer for help.
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What are preconditions?
Preconditions are requirements that must be met by either party before the finalised agreement can be made. You can choose which preconditions are included in your Heads of Terms. Common preconditions you may choose include:
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requiring the other party to fulfil conditions such as submitting certain key documents (eg safety certificates)
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obtaining shareholders’ approval to enter into the intended agreement
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conducting any required investigations and/or due diligence
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How can you end this agreement?
This Heads of Terms agreement can be terminated (ie ended) at any time by one party giving notice to the other party.
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What remedies are available to a party for the other party’s non-compliance with Heads of Terms?
As the Heads of Terms as a whole are not intended to be legally binding, remedies for non-compliance are only available for breaches of the legally binding terms.
The remedies available will be adequate and appropriate for the breach. As specified in the Heads of Terms document, they may include:
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injunctions (ie court orders stopping a person or a business from beginning or continuing conduct that violates the legal right of the other party)
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orders for specific performance (ie court orders requiring a party to do something, eg deliver up copies of confidential information for destruction)
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other equitable reliefs (eg account of profits), or
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other remedies, eg damages (ie compensation)
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What’s the difference between Heads of Terms and a Letter of intent (LOI)?
A Letter of intent is a very similar document to Heads of Terms. Both documents set out two businesses’ intentions to form a contract and provide the basis of the proposed agreement. However, Heads of Terms are drafted as a skeleton contract while a letter of intent is drafted as a letter from one party to the other. The effect of the two documents is essentially the same.
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