What are heads of terms?
In basic terms, heads of terms are used to document the key commercial terms and principles that are agreed upon between two parties in relation to a project or proposed transaction. Heads of terms can sometimes be referred to as a term sheet, letter of intent or memorandum of understanding.
As well as commercial terms, Docue’s heads of terms template also includes optional legal clauses (e.g. in relation to confidentiality and exclusivity) that can be included too.
How can using this heads of terms template help to speed up your negotiations?
Focuses the mind: As they are usually entered into early on in a commercial negotiation, heads of terms can focus the parties' minds so that the most important issues and principles are discussed and agreed upon as early as possible in the negotiation process.
Avoids dragging out negotiations: Having clear heads of terms in place can speed up the rest of the transaction and avoid long back-and-forths between the parties over specific points later down the line, as the underlying principles have been agreed up-front.
Discover more tips for efficient contract negotiations in our blog, where our legal experts share 7 top tips for creating an effective heads of terms template to streamline the negotiation process.
Are heads of terms legally binding?
Commercial vs legal: Generally speaking, the core commercial terms that are set out in heads of terms are not usually legally binding. Instead, heads of terms are used to document key commercial terms between parties early on in a transaction or project. As they are not legally binding, the parties are not compelled to move forward with the proposed transaction or project, but the document clearly sets out each party’s intention to do so to help the project or transaction progress smoothly.
Some terms can be legally binding: Docue’s heads of terms template includes the option to include some legally binding terms. For example, if the parties have not already entered into a separate confidentiality agreement or non-disclosure agreement in relation to the proposed transaction or project, a binding confidentiality clause can be included in the heads of terms to ensure that there are obligations on both parties to keep the proposed project or transaction a secret.
Legal agreement to follow: Often, heads of terms are followed by the parties entering into a formal legal agreement (e.g. a master services agreement or share purchase agreement) that reflects the terms of the heads of terms, but also includes additional legal provisions. The heads of terms are used as the first step in the contracting process.
For more guidance on drafting heads of terms, read this comprehensive guide.
What is included in this heads of terms template?
Key provisions: Docue’s dynamic heads of terms template includes:
- Purpose - a preamble is included to set out what the parties intentions are in entering into heads of terms.
- Commercial terms - this is a key part of the heads of terms template and allows the parties to set out details of the proposed project / transaction, any obligations on either party, agreed timeframes and details of any legal documents that will follow the heads of terms (if applicable). Docue’s smart heads of terms template also allows you to add additional commercial terms (anything you like!), that are specific to your transaction / project.
- Confidentiality - this is an optional section that can be included to require each party to keep the content of the heads of terms a secret.
- Exclusivity - if the parties are discussing the proposed transaction / project on an exclusive basis (so neither party is discussing it with any third parties), this can be made clear in the heads of terms and a binding clause can be included.
How do I use this heads of terms template?
So easy to use: Docue’s dynamic heads of terms template is straightforward to use and can produce a set of heads of terms in just minutes. The heads of terms template has been drafted by business lawyers, so all you need to do is answer a series of simple questions and the heads of terms will be tailored to your needs and automatically produced.
Lawyer-drafted guidance: If you get stuck with any questions along the way, there are lawyer-drafted guidance notes and information boxes that help you answer the questions as you go.
If you'd like to find out more to help you when you come to use this heads of terms template, check out these FAQs.
Why Docue?
Fully dynamic: Docue’s heads of terms template is fully adaptable to your needs. You will not just be provided with a cookie-cutter set of heads of terms, but by answering questions Docue’s top-of-the-line technology will produce a fully customised set of heads of terms for you.
Complete the contract process all in one place: After your heads of terms have been created, you collect signatures electronically via Docue’s e-signature feature. Docue’s smart and secure storage system will then store them (and your other documents) for you in Docue Drive.
Tags: heads of terms, heads of terms template, term sheet, commercial terms, HoTs, heads of agreement, memorandum of understanding, MoU
