Heads of Terms Explained and What to Include in Yours

Introduction

‘Heads of terms’ is the name given to a document that is typically entered into at an early stage of a transaction or project. Depending on the industry, region or context, you may come across different names for heads of terms such as a letter of intent (LOI), term sheet, memorandum of understanding, or agreement in principle.

The key point is that these types of documents are preliminary agreements that are entered into between parties before they enter into a final, more detailed contract for the relevant transaction or project. The purpose for these documents is usually to outline:

• the main terms that are usually already agreed between the parties; and
• a direction of travel for how the parties will work moving forwards, up to the final agreement.

What do heads of terms typically include?

There isn’t a one-size-fits-all heads of terms document. However, these documents typically include: