What Is Head Of Agreement

The reality is that a head of agreement can be binding or not. In general, however, it is expected that heads of agreement will not be binding with respect to “key terms of a proposed agreement between the parties,” but with respect to issues such as “exclusivity, confidentiality, due diligence, and intellectual property.” A document of heads of agreement is only intended to serve as an introductory agreement on the basic terms of a transaction or partnership. This is done in the pre-contractual phase of the negotiations. From the outset, an agreement will not be comprehensive enough to cover all the necessary details of a formal binding agreement. But its lack of detail is also its strength; parties are less likely to find something they disagree with. A duly drafted head of agreement is a non-binding document setting out the main terms of a proposed agreement between the parties. However, these documents may be legally binding if the contractual document contains terms or language that expressly indicate binding intent. Similarly, a letter that does not contain an expression as to the authenticity of its terms may be considered authentic on the basis of the language used. (See RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2008]) It also depends on the circumstances of the transaction and includes the conduct of the parties themselves. [2] [3] First, parties are likely to commit to non-binding commitments more quickly than they are likely to commit to binding commitments. Heads of agreements are intended to be short-term agreements that the parties can prepare and sign relatively quickly. Some heads of agreement will include provisions that require the payment of down payments or fees to deter another party from moving away from the business. However, this is relatively unusual.

A set of agreements, terms and conditions or letters of intent is a non-binding document that describes the main issues relating to a preliminary sale, partnership or other agreement. [1] A head of agreement document is only enforceable if it is incorporated into a parent contract and subsequently agreed, unless otherwise stated. Until then, an agreement is not legally binding (see Fletcher Challenge Energy Ltd v Electricity Corp of New Zealand Ltd [2002] 2 NZLR 433). As a trade term, “Accord Chefs” is most commonly used in Australia, New Zealand and the United Kingdom. If a party intends for the agreement to be legally binding at this early stage, it is crucial that it seeks legal advice to ensure that this intention is clear and that the agreement is comprehensive enough to form a legally binding agreement. .