Heads of agreement

In recent years, business clients have sought to limit the expense and complication of transactions by preparing and negotiating their own documents, then bringing them to the solicitors to finalise or “fatten up”. These documents are referred to as heads of agreement, memoranda of understanding or terms sheets. Ideally, they should set out the understanding between the parties in their own words, without any legal jargon. If so, the documents are a useful way of simplifying the solicitor’s role.

However, problems occur when clients take on the role of the lawyer. This often occurs when clients cut and paste clauses from other agreements, or from standard agreements found on the internet.

It is important that these documents should be used only for the purpose of clarifying the understanding between the parties. Problems occur when they are allowed to take on the greater role constituting legally binding agreements.

It is preferable for heads of agreement to be clearly stated as being intended not to create a legal relationship between the parties, other than for supplemental obligations like confidentiality. Rather than devoting efforts towards negotiating legally binding heads of agreement, it is usually preferable for solicitors to expend that effort on reaching agreement on the formal documentation.

See Heads of agreement.