Heads Of Terms Template: What To Include And How To Use It

Whether you’re negotiating a supply deal, partnering with another business or agreeing the outline of a share purchase, it’s wise to capture the key points early. That’s where heads of terms (sometimes called heads of agreement, a term sheet or letter of intent) come in.

Used well, a clear heads of terms template can keep momentum, align expectations and prevent misunderstandings before anyone spends time and money on drafting long-form contracts.

In this guide, we’ll explain what heads of terms are, when to use them, what to include, and how to negotiate them confidently under UK law.

What Are Heads Of Terms (And When Should You Use Them)?

Heads of terms are a short, written summary of the main commercial terms the parties agree in principle. Think of them as an agreed roadmap that your lawyers and advisors will later turn into binding contracts.

You’ll see heads of terms used across many deals, including:

• Buying or selling a business (asset or share purchase)
• Commercial partnerships and collaborations
• Supply, distribution or reseller arrangements
• Joint ventures and strategic alliances
• Investment rounds and founder buy-ins
• Significant services or outsourcing deals
• Commercial lease negotiations

They are especially helpful when there are multiple moving parts (price, scope, timelines, exclusivity, responsibilities) and you want to lock in the “big rocks” before producing a full contract suite. For example, if you’re partnering with a distributor, the heads might note territory, minimum order volumes, branding rules and termination triggers-long before you produce a full Distribution Agreement.

Are Heads Of Terms Legally Binding In The UK?

In the UK, heads of terms are typically intended to be non-binding as to the deal itself-but certain clauses are usually binding. The crucial point is clarity. Your document should say plainly which parts are binding and which are not.

Common binding provisions include:

• Confidentiality (to protect sensitive information shared during negotiations)
• Exclusivity (“no shop”) for a defined period while you negotiate
• Costs (for example, each party pays its own costs)
• Governing law and jurisdiction (usually England & Wales)

By contrast, the headline commercial terms (scope, price, timelines) are usually “subject to contract”-meaning neither party is bound to proceed until a definitive agreement is signed. Using “subject to contract” in the header and body makes that intention clear and reduces the risk of accidental binding obligations.

Be aware: even if your document says “non-binding,” the way you act can still create obligations. For instance, if you start performing key elements of the deal or make promises that the other side relies on, you can drift into a binding arrangement. If in doubt, press pause on performance until the final contract is signed, or get a quick Contract Review before you proceed.

What To Include In A Heads Of Terms Template

Your heads of terms template should be short, focused and easy to read-ideally 2–5 pages. It’s not the place for heavy legalese; it’s a checklist of agreed principles. Here’s a practical structure that works for most small business deals.

1) Parties And Purpose

• Full legal names of the parties and company numbers (if applicable)
• A short description of the deal’s purpose (e.g., “exclusive distribution of X products in Y territory”)
• Statement that the document is “subject to contract” except for specified binding clauses

2) Commercial Terms

• Scope: goods/services, territories, channels, or assets/shares being acquired
• Price And Payment: price or pricing mechanics, deposits, milestones, adjustments
• Term And Renewal: initial term, renewal options, notice periods
• Responsibilities: who does what (sales targets, support, marketing commitments)
• Key Dates: target completion date, conditions to signing/closing

3) Risk And Protections

• Warranties And Indemnities: a headline summary of key protections to be included later
• Liability Caps: intention to limit liability and any specific caps or carve-outs
• IP And Branding: who owns existing and new IP, and permitted brand use
• Exclusivity: whether the relationship is exclusive and for how long
• Non-Solicitation/Non-Compete: any restrictions (reasonable, time-limited and proportionate)

4) Process And Conditions

• Due Diligence: what will be provided, by when, and by whom
• Approvals: any board, shareholder or lender approvals needed
• Conditions Precedent: key conditions that must be satisfied before completion
• Definitive Agreements: what contracts will follow (e.g., Share Purchase Agreement, Services Agreement)

5) Binding Clauses

• Confidentiality: a short clause or, preferably, refer to a separate Non-Disclosure Agreement
• Exclusivity: an exclusivity period and what it covers; link to a longer Exclusivity Clause in the definitive contract
• Costs: who pays what during negotiations
• Governing Law: England & Wales is typical for UK deals

6) Annexes (If Useful)

• High-level timetable
• Outline term sheet (for investments)
• Heads of scope/service levels (for services)

Keep the tone simple and consistent. Heads of terms are there to guide-not replace-the final contract. If you find the document ballooning with detailed warranties and definitions, that’s a sign it’s time to move to a full agreement.

Step-By-Step: How To Negotiate And Document Heads Of Terms

A good process keeps things efficient and reduces the risk of misunderstandings. Here’s a practical sequence you can follow.

Step 1: Set Your Non-Negotiables

Before you start trading drafts, decide what really matters-your must-haves and red lines. This might include price mechanics, minimum volumes, data security standards, IP ownership or the ability to terminate if targets aren’t met. Clarity here makes negotiations faster and protects your leverage.

Step 2: Protect Confidentiality Early

Put a standalone NDA in place before sharing financials, customer lists or proprietary know-how. A separate NDA is cleaner than embedding long confidentiality wording in the heads. You can use a unilateral or Mutual Non-Disclosure Agreement depending on who is disclosing what. If you’ll be exchanging any personal data, remember UK GDPR and the Data Protection Act 2018-keep data sharing to a minimum at this stage.

Step 3: Draft A Clean Heads Of Terms Template

Start with a lean, well-structured template and tailor it to the deal. Label the document “Subject to Contract” at the top and again near the signatures. Identify which clauses are binding (confidentiality, exclusivity, costs, law).

If the deal involves combining efforts with another business, agree whether you’re heading for a Joint Venture Agreement, a services agreement or a distribution arrangement. Stating this upfront helps your teams prepare the right definitive documents.

Step 4: Keep Momentum With Short Iterations

Avoid “kitchen sink” edits. Focus each round on unresolved points. If you get stuck, try conditional language (e.g., “exclusivity for 6 months, subject to achieving milestones”) to keep things moving while protecting your position.

Step 5: Lock In Exclusivity (If Needed)

If you’re investing significant time (or you need certainty for internal approvals), consider a short exclusivity period while negotiations are ongoing. Keep it specific and time-bound. Overreaching exclusivity can raise competition concerns-seek advice if you’re controlling a large market share or imposing long no-shop periods.

Step 6: Plan The Path To Definitive Agreements

Confirm who drafts what and by when, and list the contracts you’ll need. For equity deals, the heads might signpost a Share Subscription Letter and a Shareholders Agreement. For services or supply, you might proceed to a Service Agreement or Supply Agreement. Agreeing responsibilities and timelines smooths the transition.

Step 7: Sign (But Only Bind What You Intend)

Have both parties sign the heads of terms and ensure the binding/non-binding status is crystal clear. Once signed, shift quickly to the definitive documents-delays invite drift, scope creep and loss of momentum.

Practical Tips To Avoid Common Pitfalls

• Don’t be vague on key economics: If price depends on a formula, outline the formula and any assumptions.
• Avoid “agreement to agree” on core points: You can leave some details for later, but critical terms should be stated clearly or you risk disputes.
• Watch for unintentional performance: Starting to deliver services before the final contract is signed can undermine your negotiating position.
• Keep exclusivity reasonable: Overly long or broad exclusivity risks being unenforceable or problematic under competition law.
• Use clean drafting: If a clause is ambiguous, courts may construe it against the drafter. When in doubt, get tailored Contract Drafting help.

Related Documents: MoU, Term Sheet, NDA & Exclusivity

Heads of terms sit in a family of “deal outline” documents. Understanding the differences helps you choose the right tool for your situation.

Memorandum Of Understanding (MoU)

An MoU is closely related to heads of terms. It’s typically used to record mutual intentions on collaboration or future contracting, often in public sector or cross-border contexts. Like heads, it’s usually non-binding except for specific clauses. If you’re documenting a broader collaboration before a formal agreement, a Memorandum of Understanding may be the right format.

Term Sheet

In investment and financing, “term sheet” is the norm. It summarises valuation, investment amount, class of shares, investor rights, governance and exit terms. For startup raises (SEIS/EIS, seed, Series A), a concise Term Sheet is standard and points to the definitive investment documents.

Non-Disclosure Agreement (NDA)

Although you can include a short confidentiality clause in your heads, most businesses prefer a standalone NDA so sensitive information is protected regardless of whether the deal progresses. Use a unilateral NDA if only one side is disclosing, or a mutual NDA if both will share sensitive information.

Exclusivity Letters

In some deals-particularly acquisitions-you might use a short exclusivity or “lock-out” letter alongside (or instead of) heads. This binds the seller not to negotiate with others for a set period while you complete due diligence and draft the long-form agreement. The mechanics should align with how exclusivity will appear later as a negotiated Exclusivity Clause.

Next Step: Move To Definitive Agreements

Once the outline is agreed, convert it into robust, tailored contracts. Depending on the deal, that could include a Share Purchase Agreement, Joint Venture Agreement, Service Agreement, or a Shareholders Agreement. Avoid relying on a generic “heads of terms template” as your final contract-it won’t offer the protections your business needs.

A Note On “Binding Heads Of Terms”

Occasionally, parties decide to make the entire heads of terms legally binding. You can do this, but it’s unusual and risky if the document lacks the detail and protections of a full contract. If you genuinely need a binding short-form agreement, it may be better to sign a concise, tailored contract instead and then amend or expand it later.

Key Takeaways

• Heads of terms capture the core deal in plain English, helping you align on price, scope, timelines and responsibilities before drafting detailed contracts.
• In the UK, heads of terms are usually non-binding except for specific clauses like confidentiality, exclusivity, costs and governing law-make that status explicit with “subject to contract.”
• A practical template includes the parties and purpose, commercial terms, risk/protection headings, process and conditions, and clearly labelled binding clauses.
• Protect sensitive information from day one with a Non-Disclosure Agreement, and keep any exclusivity reasonable and time-bound.
• Choose the right format for the context: heads/MoU for collaborations, a Term Sheet for investment, and move quickly to definitive agreements such as a Shareholders Agreement or Service Agreement.
• Avoid vague or overly complex heads. Keep them concise, label what’s binding, and lock in the path to final contracts to maintain momentum.

If you’d like tailored help preparing or negotiating your heads of terms (or turning them into robust contracts), you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.