Glossary

Heads of terms

Heads of terms are a short commercial outline of a deal the parties intend to write up as a full contract. In England and Wales they bind only if the parties intend that. They are often marked subject to contract, and they do the same job as a letter of intent under another name.

Last updated 28 October 2026

UK commercial lawyers reach for heads of terms, heads of agreement or a term sheet more often than “letter of intent”. The legal question is identical: did both sides intend to be bound, and by which lines? A non-compete or exclusivity line in heads of terms is the one that needs a time limit if you want it to bite before the main paper is signed — Walford v Miles [1992] 2 AC 128 is why an open-ended lock-out fails.

We put heads of terms on the same shared link as the contract that will replace them. Lex can draft the outline from one sentence; both sides mark it, then sign. That is cleaner than a PDF of “HoT_final” sitting in email while the statement of work is negotiated in a different file.

Are heads of terms binding in England and Wales?

Only the lines the parties intend to be binding, and only if those lines are complete enough to be a contract. “Subject to contract” is the usual signal that the outline is not the deal. Confidentiality, costs, exclusivity for a fixed period, and governing law are the lines people make binding on purpose. The rest waits for the signed agreement.

How do heads of terms differ from a letter of intent?

They do not, in law. Heads of terms is the usual UK label; letter of intent is the same shape under a name many US-style templates still use. Call the document what the other side will recognise, then say which clauses bind today. The name on the cover does not decide enforceability. Intention and wording do.

What belongs in heads of terms?

The parties, the commercial shape of the work, money, dates, what is binding now, a subject-to-contract line, and how long the heads last. If a later master services agreement plus statements of work is the plan, write that structure down. Leave liability, IP and termination for the full contract unless you mean those to bite early.

Should heads of terms be signed?

Yes, if any line is meant to bind, and yes if you want a clear record of the outline even when the rest is subject to contract. An e-signature on one frozen version is enough for an ordinary agreement. Do not sign two different drafts and call them the same heads. The executed version is the one you keep.

A worked example

A consultancy and a scale-up sign heads of terms: a six-month product review, a fee range, a four-week exclusivity on that review, and a mutual confidentiality duty. Everything else is subject to contract. Two weeks later they sign a consulting agreement that replaces the heads, except confidentiality which the new paper repeats.

How it shows up in a contract

Sample wording · our own drafting

These heads of terms are subject to contract and are not intended to be legally binding, except for paragraphs [Confidentiality], [Exclusivity] and [Governing law]. They expire on [date]. They will be replaced by the agreement the parties intend to sign.

In Plain English

This outline is not the contract, except the secrecy, exclusivity and governing-law paragraphs, which are. It ends on the named date. The later signed agreement takes over.

Common mistakes

  • Treating “heads of terms” as automatically non-binding without a subject-to-contract line.
  • Putting an open-ended exclusivity in the heads, which Walford v Miles shows will not hold as a lock-out.
  • Signing heads and the later contract with different fees and never saying which wins.
  • Leaving the heads unsigned while both sides start work, so nobody can show what was agreed.

Frequently asked questions

What are heads of terms?

A short commercial outline of a deal the parties intend to write up as a full contract. Also called heads of agreement or a term sheet.

Are heads of terms binding?

Only the lines the parties intend to be binding. Mark the rest subject to contract. A lock-out needs a fixed period — Walford v Miles [1992] 2 AC 128.

Do heads of terms need to be signed?

Yes if any line is meant to bind, and yes if you want a clear record of the outline. An e-signature on one frozen version is enough for an ordinary agreement.

What belongs in heads of terms?

The parties, the commercial shape, money, dates, what is binding now, a subject-to-contract line, and how long the heads last.

Related

The legal wording governsLast reviewed 28 October 2026Pending lawyer review