
Heads of Agreement
A "heads of" agreement is a non-binding document that outlines the basic terms of a tentative partnership agreement or transaction. A heads of agreement can provide both parties in a transaction or partnership the following: Evidence for both parties that a deal is likely so neither party wastes time or money Guidelines for negotiating a formal agreement A running list of agreed-to terms Proof to lenders or investors that both parties are committed to a formal agreement A tool and guidelines for addressing confidentiality, due diligence, intellectual property, exclusivity, as well as other pre-contractual issues A heads of agreement document is only meant to serve as an introductory agreement to the basic terms of a transaction or partnership. By design, a heads of agreement will not be comprehensive enough to cover all the necessary details involved in a binding formal agreement. Heads of agreement can be binding or non-binding, depending on the language used, though they are not generally binding.

What Is a Heads of Agreement?
A "heads of" agreement is a non-binding document that outlines the basic terms of a tentative partnership agreement or transaction. Also known as a "heads of terms," or "letter of intent," a heads of agreement marks the first step on the path to a full legally binding agreement or contract and a guideline for the roles and responsibilities of the parties involved in a potential partnership before any binding documents are drawn up. Such a document is commonly used in commercial transactions, such as the purchase of a business.
As a business term, "heads of agreement" is most commonly used in Australia, New Zealand, and the United Kingdom.



Understanding a Heads of Agreements
A heads of agreement document is only meant to serve as an introductory agreement to the basic terms of a transaction or partnership. It happens during the pre-contractual stage of negotiations. By design, a heads of agreement will not be comprehensive enough to cover all the necessary details involved in a binding formal agreement. But its lack of detail is also its strength; the parties are less likely to find something they do not agree on.
Once both parties come to a broad consensus on a partnership or transaction and have signed a heads of agreement document, the next step entails involving attorneys and accountants to iron out the details. Such details may include a number of pre-conditions that must be satisfied before a final agreement is made. The step after that is the signing of a binding contract, though a heads of agreement may be terminated at any time by either party with some caveats.
Heads of Agreement Purposes
A heads of agreement can provide both parties in a transaction or partnership the following:
Heads of Agreement: Binding or Not?
Heads of agreement can be binding or non-binding, depending on the language used, though they are not generally binding. That said, some aspects, such as intellectual property, exclusivity, confidentiality, and non-solicitation provisions, tend to be binding, though only if the time-frames are reasonable. If a heads of agreement document is written so that it is binding it can present problems.
Since most aspects of a heads of agreement are not binding, the remedies for non-compliance by either party are few. In fact, they only apply to the legally binding terms listed above. If there is a breach of those binding terms by one party, the other may file for an injunction, equitable relief, damages or specific performance.
Related terms:
Confidentiality Agreement
A confidentiality agreement is a legal agreement that binds one or more parties to non-disclosure of confidential information. read more
Intellectual Property
Intellectual property is a set of intangibles owned and legally protected by a company from outside use or implementation without consent. read more
Indication of Interest (IOI)
Indication of Interest (IOI) is an underwriting expression showing a conditional, non-binding interest in buying a security currently in registration. read more
IOU
An IOU is a document acknowledging a debt. IOU is a phonetic version of the words "I owe you." Learn how IOUs work and when they are legal. read more
Letter of Intent (LOI)
A letter of intent (LOI) outlines the terms of a deal and serves as an “agreement to agree” between two parties. read more
Mandatory Binding Arbitration
Mandatory binding arbitration requires the parties to resolve contract disputes before an arbitrator rather than through the court system. read more
Master Swap Agreement
Master swap agreement refers to a standardized contract between two parties to enter into a over-the-counter (OTC) derivatives agreement. read more
Mergers and Acquisitions (M&A)
Mergers and acquisitions (M&A) refers to the consolidation of companies or assets through various types of financial transactions. read more
Partnership
A partnership in business is a formal agreement made by two or more parties to jointly manage and operate a company. read more
Term Sheet
A term sheet is a non-binding agreement that sets out the basic terms and conditions of an investment. read more