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Home  Buying & Selling   Overview of the Heads of Terms

Overview of the Heads of Terms

Record proposed terms during negotiations between two parties using this heads of terms. Heads of terms – whilst not usually legally binding are useful when recording what is to be included in a proposed agreement and what is not. This heads of agreement has options to include legally binding obligations of confidentiality, exclusivity and non-solicitation.

Important to agree head of terms at an early stage, ideally at the viewing!!

When should I use heads of terms?

Use this heads of terms

  • if you are interested in signing an agreement with another business
  • to formalise on-going 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

 

What’s included in heads of terms?

  • 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

 

What are heads of terms?

A heads of terms agreement provides the basis for a future agreement between two businesses. 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.

 

Do I need heads of terms?

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.

 

What are the examples of proposed agreements that these heads of terms can be used for?

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.

Are heads of terms legally binding?

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 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.

 

What are preconditions?

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 fulfill 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.

 

How can you terminate this agreement?

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

 

What are the remedies available for non-compliance with heads of terms by either 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:

  • injunction (which may stop the person or a company 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

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