What are Heads of Terms?

Heads of Terms refers to a document that sets out the terms of a commercial transaction that have been agreed upon between parties in the course of initial negotiations, and it is the first document that solicitors usually come across when dealing with most significant commercial transactions.

When are they entered into?

Heads of Terms are commonly entered into at the beginning of a transaction, once preliminary terms have been agreed and before the commencement of detailed due diligence and the drafting of definitive contractual binding agreements. The parties may enter into a series of Heads of Terms throughout the negotiations, particularly when negotiations are prolonged. They play an essential role in setting the foundations for discussions and the drafting of the contractual binding agreements going forward.

Legally Binding?

Although important, Heads of Terms are not usually legally binding, but might often contain provisions that are carefully negotiated and could be construed as being legally binding. Provisions relating to confidentiality and costs may be binding on the parties and parties need to be extra vigilant when agreeing those to ensure that their negotiations remain confidential. To avoid any doubt, most Heads of Terms should contain an express statement to the effect that either they are not legally binding or which provisions are to be considered to be binding/non-binding.

Who drafts the Heads of Terms?

Parties should pay extra attention when the Heads of Terms document is drafted as it frames the future of the transaction, and clear and precise language must be used to avoid any confusion in interpretation or misunderstandings at a later date. Either party can draft the Heads of Terms, but in Commercial Real Estate transactions it is common practice for the seller/landlord to prepare the initial document.

What should be included in the Heads of Terms?

Each transaction is unique and thus the Heads of Terms differ from one to another. However, some standard elements are common in all documents. These are:

• Nature and description of the transaction;
• Identify the parties involved in the transaction;
• The price or rent and method of payment;
• Confidentiality provisions;
• Completion timescales;
• Any potential issues that might need to be resolved;
• Any other relevant key commercial terms; and
• Details of solicitors representing each party.

The Heads of Terms document might seem like a simple non-binding document, but it is a significant document that parties need to carefully enter into, and it is best to seek advice from an experienced solicitor who can guide you appropriately to avoid facing any issues in the future. For expert advice and assistance with drafting your Heads and Terms, contact our experienced solicitors who would be happy to assist.

The Gilson Gray Real Estate Team have a wealth of experience acting for investors across all types of commercial property. If you are an experienced commercial property investor or looking to make your first commercial property acquisition do please do get in contact to discuss your requirements.

The information and opinions contained in this blog are for information only.  They are not intended to constitute advice and should not be relied upon or considered as a replacement for advice.  Before acting on any information contained in this blog, please seek solicitor’s advice from Gilson Gray.