Glossary · UK
What is Heads of Terms?
A written summary of the key commercial terms agreed in principle for a property or business deal, such as a commercial lease, before solicitors draft the formal legal contract.
Full Definition
Heads of Terms (sometimes called a letter of intent or memorandum of understanding) is a document summarising the key commercial terms that parties to a property or business transaction -- most commonly a commercial lease or a business sale -- have agreed in principle, before solicitors are instructed to draft and negotiate the full, legally binding contract. For a commercial lease, Heads of Terms typically cover matters such as the rent, the length of the lease term, any rent-free period, the extent of repairing obligations, break clauses, permitted use of the premises, and who is responsible for costs such as service charge, buildings insurance and rates. Heads of Terms are usually expressed to be "subject to contract" and are not intended to be legally binding (except for specific clauses, such as confidentiality or exclusivity, which the parties may agree should bind them), which allows either side to walk away before signing the formal lease or sale agreement without being sued for breach of contract. Agreeing Heads of Terms early is valuable because it surfaces the major commercial points and potential deal-breakers before solicitors spend time and costs drafting detailed legal documents, reducing the risk of the transaction stalling or falling through late in the process over a fundamental disagreement that could have been resolved earlier.