Heads of Terms: a strategic tool in deal-making

Heads of Terms (“HoTs”), also known as Letters of Intent (“LOIs”) or Memoranda of Understanding (“MOUs”), are preliminary agreements that outline the key terms of a commercial deal before a more formal and detailed contract is drafted. Though generally non-binding, they play a pivotal role in shaping negotiations and reducing misunderstandings between parties.

Purpose & value of Heads of Terms agreements

  • clarify intentions: help parties align on core objectives before investing time and legal costs
  • set the framework: lay out essential deal components (such as price, timelines, deliverables, and responsibilities)
  • spot deal-breakers early: surface major disagreements before deeper engagement, saving time and resources
  • facilitate internal approvals: provide a concise summary for boards, investors, or other stakeholders to assess viability

While HoTs are typically not legally binding, some specific clauses (such as confidentiality, exclusivity, dispute resolution, or governing law) can be enforceable if drafted with clear intent. Precision in language is critical, as ambiguity can lead to unintended obligations or disputes.

Strategic use

In fast-moving sectors like tech, real estate, or private equity, HoTs offer reassurance and momentum during negotiations. They are especially valuable in:

  • cross-border transactions: bridging legal and cultural differences before formal contracts
  • joint ventures or partnerships: aligning expectations among multiple parties with differing interests
  • M&A deals: signaling commitment and guiding due diligence efforts

Best practices

  • keep these documents concise and focus on material terms, not exhaustive detail
  • clearly label binding vs. non-binding provisions
  • involve legal counsel early to avoid drafting pitfalls
  • use HoTs as a living and agile document, update as negotiations evolve