Heads of terms

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A set of heads of agreement, heads of terms, or letter of intent is a non-binding document outlining the main issues relevant to a tentative sale, partnership, or other agreement.^[1]

A heads of agreement document will only be enforceable when it is adopted into a parent contract and is subsequently agreed upon, unless otherwise stated. Until that point, a heads of agreement will not be legally binding. However, such documents can become legally binding if the agreement document contains terms or language which explicitly indicates an intention to be legally bound. Equally, a letter which contains no expression of whether its terms were intended to be binding can be found to be binding due to language used. This is also dependent on the circumstances of the transaction and includes the conduct of the parties themselves.^[2][3]

A key function of Heads of Terms is to assist in the identification of critical issues as early as possible during negotiations which could stop a transaction going ahead.