The question of whether heads of terms (also known as letter of intent and memorandum of understanding) is legally binding can be ambiguous. In light of the recent events involving Elon Musk and his proposed takeover battle with Twitter, it is only right to briefly review the legal position of heads of terms in a proposed contract or transaction.
The heads of terms document will often cover key points such as:
- Parties: parties to the agreement.
- Confidentiality: is any information supplied as part of the negotiation process confidential, alongside the heads of terms?
- Enforceability: will the heads of terms be a pre-contract agreement and ‘subject to contract’ or will all or some of the clauses be legally binding?
- Exclusivity: a document in which the buyer and seller agree to deal with each other in good faith in the anticipation of an exchange of contracts for an agreed price by the end of a fixed period of time.
- What are the key terms? For example, the price of goods (in a commercial contract), purchase price (in a transaction), payment or timescale for signing and execution.
- What standard terms are headlined in the heads of terms and need to be detailed in the contract? for example, fundamental and commercial warranties or indemnities or restrictive covenants.
- Jurisdiction? What governing law will cover the heads of terms in case there are any disputes regarding the heads of terms themselves.
The main purpose of heads of terms is to summarise the key aspects of a proposed contract or transaction. Doing this will streamline the negotiations later and assist in the drafting of a more detailed and legally binding agreement.
To find out more about this subject, contact Wilson Browne Solicitors or call 0800 088 6004.
Trainee Solicitor
Corporate and
Commercial Law
Wilson Browne
Solicitors
