Heads of Agreement
Candlefocus EditorHeads of agreements are used to document the broad agreed commercial points between two or more parties who are planning a business transaction. The agreement sets out the agreed terms of a commercial transaction, allows for any further negotiations between the parties, and provides some protection for each party during the process of bringing the agreement to fruition. It is usually drawn up with the help of lawyers and is subject to general contract law principles.
A heads of agreement is a non-binding and often short document, used to record the most fundamental, agreed terms of a commercial transaction. This document is not legally binding, as it will typically not contain the necessary details or clauses that would be required to make it binding, however, it can be used to help demonstrate the parties’ intent to enter into a business transaction, and it can sometimes be a tool to enforce certain obligations, such as a non-disclosure agreement (NDA).
Heads of agreements are used primarily to set the parameters of a transaction when the terms of the deal cannot be agreed in full at the outset, or if the parties wish to settle the basic terms and come back at a later date to negotiate the more specific aspects of the agreement. It is also an effective way of preserving the parties' respective bargaining power, as many large companies will require written heads of agreement before significant resources can be put into the negotiations.
In summary, a heads of agreement is an initial, non-binding document that establishes the basic framework for a partnership or transaction. It is used to outline the major points of the proposed transaction, allowing for further negotiations between the parties, and providing some protection for each party during the process of bringing the agreement to fruition. While heads of agreements are considered non-binding, certain aspects, such as nondisclosure clauses, may be binding, depending on the specific circumstances.