What is a heads of terms agreement?
Heads of terms is a document setting out the main points of a proposed deal that the parties have agreed in principle, before full contracts are drafted - largely non-binding, but with some clauses that bind.
Heads of terms (also called a letter of intent or memorandum of understanding) records the shape of a deal once the parties agree in principle but before the lawyers draft the binding contracts. It captures the essentials - price or structure, what is included, key conditions and timetable - so everyone is aligned on substance before spending on detailed drafting.
Most of the document is deliberately non-binding: it expresses intent, not an enforceable commitment to complete. But certain clauses are usually binding, typically confidentiality and exclusivity (a period in which the seller agrees not to talk to other buyers), plus how costs are handled if the deal falls through. Because those bind, the wording is not a formality.
In practice, signing heads of terms is the trigger for confirmatory due diligence: it is the point where a negotiation becomes a documented plan and the confidential material behind the deal starts to open up.
In 99 Data Rooms
How it works here.
In 99 Data Rooms you can share a draft heads of terms as a tracked, revocable link and see who has read it before the next conversation, then open the due diligence room once it is signed. Early drafts stay gated by verified email or passcode, UK-hosted and encrypted at rest, so a sensitive pre-contract document does not spread beyond the parties.
Common questions
Heads of terms, in short.
Is heads of terms legally binding?
Usually only in part. The commercial terms are typically non-binding statements of intent, while clauses such as confidentiality and exclusivity are usually binding. Which parts bind depends on the wording, so take legal advice; this is general information, not legal advice.
How is heads of terms different from a term sheet?
They serve the same purpose - summarising agreed terms before full contracts. 'Heads of terms' is more common in M&A and commercial deals, while 'term sheet' is more common in venture investment. The structure and the mostly-non-binding nature are the same.
Related terms
What is a term sheet?
A term sheet is a short document setting out the main commercial terms of a proposed investment or deal - valuation, amount, rights and key conditions - before the full legal contracts are drafted.
DefinitionWhat is due diligence?
Due diligence is the structured investigation a buyer, investor or lender runs before a deal, checking a company's finances, contracts, legal standing and risks against what has been claimed.
DefinitionWhat is a disclosure letter?
A disclosure letter is a document a seller gives a buyer alongside a sale agreement, setting out exceptions to the warranties - the specific facts that would otherwise make a promised statement untrue.
Try it on a real document. Turn a PDF into a tracked, revocable link in a couple of minutes. Three rooms stay free for as long as you want them, no card required.