What are Heads of Terms? …aka Heads of Agreement, Memorandum of Understanding, Term-sheet

In this video, I answer the question, What are Heads of Terms? …or Heads of Agreement, Memorandum of Understanding, or Term-sheet?

This video is safe for viewing in the workplace.

This is learning, so, sit back and enjoy

Disclaimer

First, and crucially…

I have no qualifications to give legal advice. So, this is not legal advice. It is an explainer video, based on general business and commercial experience.

Heads of Terms

Heads of Terms are also called Heads of Agreement, a memorandum of understanding, a term-sheet, or a letter of intent.

But, What are Heads of Terms?

Heads of terms are a written outline of the agreement the parties intend to commit to. That is, an ‘agreement in principle’.

They set out the key commercial principles and intentions which the parties have discussed during negotiations. They intend the Heads of Terms will form the basis of a future, more detailed contract.

Once Heads of Terms have been agreed, the parties will have the confidence to commit to the costs of negotiating the details and having their legal teams draft the full contract.

Are Heads of Terms Legally Binding?

Heads of Terms are not usually intended to be legally binding, but to be the basis of a strong commercial commitment. However, there are circumstances in which Heads of Terms can become legally binding, so it is always wise to take advice from a lawyer with expertise in the appropriate legal jurisdiction. I am not one!

So you can get an agreement in principle to the broad outline, subject to the formal contract.

When We Use Heads of Terms

Heads of Terms agreements are most often used when the proposed transaction is complex. Developing a Heads of Terms document can help both parties to see if a potential contract looks viable before committing more time and resources towards it if not.

As a result, Heads of Terms are not always signed. But they may choose to sign the document to acknowledge agreement to it. There will therefore probably be a form of words that limits the degree of commitment and enforceability – for example, a term like ’subject to contract’. So, the parties should always take legal advice before signing a heads of terms agreement. This can be a complex area of law, that may be different in each jurisdiction.

What do Heads of Terms usually cover?

Heads of Terms usually include:

• The identities of the parties
• The fundamental purpose of the contract
• The obligations on each party
• The commercial terms, including price and payment schedules
• The terms of the contract
• Important dates
• Confidentiality agreements
• Any protection for the parties in the event of a failed transaction
• Any unusual provisions which are key to whether a party would proceed with the transaction or not
• Key issues that remain to be discussed or agreed on

Recommended Videos and Articles to Help with Contracts and Project Procurement

Carefully curated video recommendations for you:

• Should a Project Manager Get Involved in Contract Negotiations? | Video
• A Fixed Price Contract for Your Project: Pros and Cons | Video
• Project Procurement Management 101 – All the Basics You Need to Know
• Competitive Procurement: How to Run a Tender Process | Video
• You Don’t Get What You Deserve… You get what you negotiate | Video
• How to Negotiate: The Basics of Negotiation | Video
• Powerful Negotiation Skills: Your Guide to How You Can Win

Negotiation Skills from our sister channel, Management Courses

• Management Courses has a whole [FREE] course on Negotiation

What Kit does a Project Manager Need?

I asked Project Managers in a couple of forums what material things you need to have, to do your job as a Project Manager. They responded magnificently. I compiled their answers into a Kit list. I added my own. 

Check out the Kit a Project Manager needs

Note that the links are affiliated.

Learn Still More

For more great Project Management videos, please subscribe to the OnlinePMCourses YouTube channel.

If you want basic Management Courses – free training hosted on YouTube, with 2 new management lessons a week, check out our sister channel, Management Courses.

For more of our Project Management videos in themed collections, join our Free Academy of Project Management.

For more of our videos in themed collections, join our Free Academy of Project Management.