Are Heads of Terms Legally Binding?

Congratulations – you have found a buyer for your business. But what happens next? It’s a good idea to document the main terms of the company sales and terms. This will often be an agreement in the form of a headline price along with it will be calculated and paid. The document is known as the ‘heads of terms’. However, it is also referred to as a letter of intent or a term sheet.

But, is are Heads of Terms legally binding? That’s what we look at in this blog post.

There are the parts of every legally binding Heads of Terms. These are the confidentiality clause, the exclusivity clause and the cost clause. Your heads of terms may not have the first two included. This is because they may have been dealt with in separate documents earlier on in the process.

• The confidentiality clause is in place to ensure that all parties keep the deal confidential. This means that the buyer must not make any information public that has been disclosed during due diligence.
• The exclusivity clause is in place to prevent the seller negotiating the sale of the shares with anyone else other than the potential buyer of the company.
• The costs clause obliges each of the parties to pay their own costs. This is done regardless of whether the deal is completed or not.

While not all parts of the heads of terms are legally binding, they do have a moral force. This is what can make them a very good negotiating tool. This is especially the case if the buyer tried to change the deal at a later date with no good reason.

It’s important to note that these clauses and moral force of the clauses work both ways. This is why you should speak to our commercial lawyers in Peterborough. We can review and advise on the heads of terms before you sign them. By doing this, we can ensure that the main commercial terms are included. Our corporate solicitors will also ensure they are adequately protected and are fully aware of what you are getting into.

Having corporate legal experts provide heads of terms avoids potential misunderstandings and commercial differences at a later stage. By managing them early on in the process of buying and selling the business it can make a quicker, smoother and more efficient process at a later date.

Call our corporate solicitors in Peterborough now to see how we can help with the sale of your business.