Heads of Terms, Explained (2026)

Heads of terms are a document that records the main points two parties have agreed on a deal, before their lawyers draft the full, binding contract. The term is common in the UK and other common-law jurisdictions, especially in commercial property, business sales and partnerships. Heads of terms go by other names too, including heads of agreement, memorandum of understanding and, in investment, a term sheet. They do much the same job as a letter of intent: capture the shape of a deal and create momentum, while leaving the detailed, binding commitments to the full contract. This guide explains what heads of terms are, when they are used, what binds, the key terms, and a skeleton. It is general information, not legal advice; local law varies. ## What heads of terms are Heads of terms set out the commercial essentials: who the parties are, what is being bought, sold or agreed, the price or value, and the main conditions and timetable to get to a signed contract. They are usually short and written in plain language, often as a list of agreed points. Their purpose is to confirm that the parties are aligned on the big things before anyone spends money on diligence and detailed drafting, and to give a clear brief to the lawyers who will produce the full agreement. In a property deal, for example, heads of terms will cover the property, the price or rent, the lease length, any rent-free period, and who pays costs, long before the formal lease is drawn up. ## When heads of terms are used Typical situations include: - Commercial property: agreeing the main terms of a lease or purchase before the formal documents.

• Business sales and acquisitions: setting out price, structure and conditions before the sale agreement.
• Joint ventures and partnerships: recording how the parties will work together before the detailed agreement.
• Significant supply or collaboration deals. Heads of terms are worth the effort when a deal is complex enough that misunderstanding the basics would waste real money in legal fees and diligence. They help a board or funder see what is proposed, and they can set a period of exclusivity. For a simple deal, they add delay without value; go to the contract. ## What binds and what does not This is the point people most often get wrong. Heads of terms are generally intended to be non-binding as to the commercial terms: they record intention, not a promise to complete, so either side can walk away if the full contract is not agreed. But, as with a letter of intent, some clauses are usually carved out as binding: - Confidentiality of the discussions and shared information.
• Exclusivity (or lock-out), where one or both agree not to negotiate with others for a set time.
• Costs, who pays if the deal proceeds or falls through.
• Governing law. The safe practice is to state clearly, in the document, that the heads of terms are not binding except for the named clauses. This matters because a detailed document that looks like agreement can, in some circumstances, be treated as creating a binding contract even where that was not intended. Marking the document subject to contract, and being explicit about what binds, reduces that risk. Do not rely on the label alone; the substance and the stated intention are what count. ## The key terms to include Well-drafted heads of terms usually cover: - The parties and the structure of the deal.
• The subject: the property, business, or arrangement.
• Price, rent or value, and how it is paid.
• Key conditions to a full agreement (diligence, approvals, consents, finance).
• Exclusivity period, if any.
• Confidentiality.
• Timetable and next steps to a signed contract.
• Costs and any break fee.
• The binding and non-binding statement, making clear what is intended to bind.
• Governing law. ## An illustrative skeleton 1. Date and parties

2. Background and purpose
3. The proposed transaction (what is being agreed)
4. Price, rent or value and payment outline
5. Key conditions to a full agreement
6. Due diligence
7. Exclusivity period (binding)
8. Confidentiality (binding)
9. Costs and any break fee (binding)
10. Timetable and next steps
11. Subject to contract and binding and non-binding statement
12. Governing law (binding)
13. Signatures Give the most care to the binding and non-binding statement, the exclusivity, and the confidentiality, because those are the parts with teeth. ## Heads of terms, letter of intent, term sheet, MOU These names overlap heavily and are often used interchangeably. The differences are mostly convention and format. Heads of terms is the common UK label, especially in property. A letter of intent is written as a letter. A term sheet is a bullet-point list, common in investment. A memorandum of understanding is often used between organisations and sometimes where the parties want to stress the non-binding, cooperative nature of their understanding. Whatever the name, the same discipline applies: capture the essentials, keep it shorter than the contract, and be explicit about what binds. ## Common mistakes - Not stating binding status, so no one is sure what is committed.

• Making them so detailed they read like the contract, risking an unintended binding agreement.
• Open-ended exclusivity with no end date.
• Treating heads of terms as the deal rather than the brief for the real contract.
• Skipping legal input on a high-value or property deal where local formalities matter. ## Carrying heads of terms into the full contract Heads of terms are a brief for the full agreement, and the work is carrying the agreed points into it cleanly while tracking exclusivity dates, conditions and the timetable. A contract workspace helps. Adira can draft from a brief into a structured clause tree, track the key dates and obligations heads of terms create on a live timeline, colour-code positions so you can see where the full contract drifts from what was agreed, and keep versions straight. It is one AI workspace tuned to your company and built on Claude; see Adira. The explanation above stands on its own. ## Bottom line Heads of terms record the main points two parties have agreed before the full contract, to confirm alignment and brief the lawyers. The commercial terms are usually non-binding, but confidentiality, exclusivity, costs and governing law typically bind, so state clearly what does. Keep them short, mark them subject to contract, pin down exclusivity and confidentiality, and get legal input on high-value or property deals. The real contract is still where the binding commitments are made.