A set of heads of agreement or heads of terms is a non-binding document outlining the main issues relevant to a tentative (partnership or other) agreement. A heads of agreement document will only be enforceable when it is adopted into a parent contract and subsequently agreed upon. Until that point, a heads of agreement will not be legally binding (See Fletcher Challenge Energy v Electricity Corporation of New Zealand [2002] 2 NZLR 433).
Commercial property transaction
In a commercial property transaction in the UK, a heads of agreement is often known as the heads of terms (HOTS). The main purpose of the heads of terms is to identify and highlight the requirements of both the seller and the purchaser of the property. There are a number of advantages of using the heads of terms. For instance, by carrying this out, both parties will fully understand what they are subject to, and reduce or abolish any misunderstandings from either party. The heads of terms normally contains the following information: