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Are agreed Heads of Agreement binding if no substantive agreement was ever signed?
We agreed Heads of Agreement with a third party but no final agreement was ever signed. What are the implications? Is the agreement void?
It may not be void but it may be unenforceable. Generally, when parties enter into a Heads of Agreement they do not intend for the agreement to be binding. A Heads of Agreement is an "agreement to agree" when often a number of essential terms have yet to be agreed. The "Heads" will usually state that it is not intended for the heads to be binding on the parties but rather the parties agree to enter into the heads as an act of good faith, and to show a commitment to the deal and the negotiating process.
If it is intended that the "Heads" be binding on the parties, then the parties should probably enter into the substantive agreement. However, in some situations there may be commercial reasons to ensure that letters of intent or Heads of Agreement do create an enforceable contract that is binding on the parties.
If it is intended that the Heads is to be binding on the parties then the parties and their solicitors should ensure that the form of agreement is drafted in such a way that is binding.
We can provide standardised and simple forms of 'agreement outlines' which can be used for this purpose, and will help you draw up clauses to deal with special issues which will need to be addressed by the parties.
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