Heads of Terms

Heads of Terms Solicitors in Manchester, Blackburn and Lancashire

Before entering into a Share or Asset Purchase Agreement it is common for the Buyer or the Seller of the Business to agree a number of key points known as the heads of terms.

Heads of terms evidence serious intent, and have moral force, but do not legally compel the parties to conclude the deal on those terms or even at all.

They are used in a variety of other transactions, including mergers and acquisitions, joint ventures, project financing and private equity investments.

There is no standard form for heads of terms. They can vary from a simple letter (which is probably the most common format) to a carefully drafted document prepared by advisers. Similarly, there is no convention as to who prepares the heads for an acquisition, although it is more common for this to be initiated by the buyer.

It should not always be assumed that heads of terms will be useful in the context of negotiating the deal and they may be of more use to one party than the other, but heads of terms can help to avoid misunderstandings and provide a useful map of the steps to be taken on the way to signing the formal agreement. If, however, negotiation of the heads of terms stalls over points of unnecessary detail (which in reality should properly be addressed at a later stage in the process) this can delay preparation of the definitive documents and increase the length and cost of the negotiations.

Heads of terms are used for a number of purposes:

  •          As written confirmation of the main terms agreed in principle.
  •          To outline the timetable and obligations of the parties during the negotiations.

As a framework for certain preliminary legally binding clauses, such as an exclusivity (or lock-out) agreement.