The DocuStream Blog

News, case notes and articles on technology and telecommunication law

Why a Heads of Agreement is better than nothing April 11, 2016

A Heads of Agreement, like a Letter of Intent or Memorandum of Understanding is typically a preliminary document that sets out the broad parameters of the deal that is to be negotiated. Frequently, these preliminary documents are non-binding, or are partly binding - that is, only some of the clauses are legally binding. 

The benefits of having a Heads of Agreement in place (as opposed to having a "handshake deal") are generally as follows:

  1. Each party will be under the impression that the other party is serious about doing a deal, given that they have actually signed a document (whether or not it is binding);

  2. A Heads of Agreement will clarify the intentions of the parties which might otherwise be unclear - especially when compared against a "handshake deal". Handshake deals are notorious for being difficult to enforce;

  3. To the extent that a Heads of Agreement is binding, it will place relevant obligations on the parties that should be put in place during the negotiation of a Long Form Agreement, such as confidentiality obligations and obligations which specify whether the negotiations are to be conducted on an exclusive or non-exclusive basis.‚Äč

A Heads of Agreement, as a short form document, is only preliminary in nature and should not be used as a substitute for a comprehensive, long form binding and definitive legal agreement. However, until such time as a long form agreement is negotiated, a Heads of Agreement still has its place in the commercial negotiation process and its importance and utility should not be underestimated. 

We regularly assist our clients negotiate Heads of Agreements and other preliminary short form agreements, as well as long form agreements. 

Those embarking on commercial deals in the IT and telco industries might wish to consider our Heads of Agreement template, which comes with a limited amount of free legal advice.

The information on this blog does not take into account your specific requirements and does not constitute legal advice and nor is it a substitute for legal advice. Readers should obtain legal advice on their specific circumstances.