The document, common in UK deal-making, that records what buyer and seller have agreed in principle before binding contracts are drafted. Labelled subject to contract; treated by everyone as the deal.
Heads of terms carry a legal disclaimer and a behavioural guarantee. The law says nothing is agreed yet. The negotiation that follows says otherwise: departures from the heads must be argued for, and the arguing costs goodwill.
Last reviewed 3 July 2026 · Free and ungated
Put the proposed terms to selected senior operators who have negotiated both sides, before the heads are signed.
Challenge the assumptions before committingHeads of terms (also heads of agreement) summarise the principal points of a proposed deal: the parties, the price and how it will be paid, structure, key conditions, exclusivity and timetable. The substance matches a term sheet or letter of intent; the label varies by market and habit. Apart from exclusivity, confidentiality and costs provisions, the content is normally stated to be non-binding and subject to contract.
The heads fix the reference point for everything that follows. Once a price and structure are written down, boards are briefed on them, advisers are instructed against them, and any later attempt to move a term reads as bad faith rather than as new information arriving. That gives the drafting stage more leverage than its informality suggests, and it rewards the party who arrives with a position on the awkward subjects: warranties, restrictive covenants, what happens to the pension scheme. The side that says "we will sort that in the legals" has usually just agreed to sort it on the other side's terms.
Two failure patterns dominate. Heads agreed thin, recording price and little else, so the expensive disagreements are discovered in month three of drafting, with exclusivity running and fees mounting. And heads agreed on unverified numbers: a price anchored to management accounts that diligence later undermines, leaving the buyer to choose between overpaying and reopening a figure the seller now regards as promised.