Heads of terms in commercial transactions
A practice note that provides guidance on using heads of terms in commercial transactions under English law. The note explores the purpose and legal status of heads of terms documents, also called letters of intent or memoranda of understanding, clarifying whether they are non-binding, partially binding or fully binding. It examines the critical elements of contract formation in this context, such as the intention to create legal relations and certainty of terms, which determine if an agreement is enforceable. The note weighs the advantages of using these preliminary documents against the risks, such as unintentionally creating a binding contract. It analyses common legal issues that arise, including the use of "subject to contract" wording and "agreements to agree", referencing relevant case law. The note also discusses practical considerations like duration, payment caps and alternative structures.
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