Heads of Terms UK: Exclusivity & MOU Guide 2026
We're not a law firm — we help you find the right legal support. For advice on your situation, speak to a legal adviser or find a solicitor.
When two businesses are circling a deal but not quite ready to commit, a Heads of Terms document helps both sides pin down what they think they've agreed so far. You might hear it called a Memorandum of Understanding, a Letter of Intent, or a Term Sheet.
The labels are largely interchangeable, and the purpose is the same: capture the shape of the deal on paper before anyone spends serious money on lawyers drafting the full contract. Most of the content is deliberately non-binding, but certain clauses, such as exclusivity, confidentiality, and costs, are usually intended to bind from the moment signatures land.
Getting that distinction right matters, because a sloppy Heads of Terms can either bind you to things you didn't mean to commit to, or leave you with no protection at all during the run-up to completion.
What this document is
A Heads of Terms document is a short written record of the main commercial points the parties have reached in principle. It typically covers who is involved, what is being bought, sold, or built, the headline price or payment structure, proposed timings, and any conditions that need to be satisfied before the deal can complete.
In commercial transactions, it often sits alongside, or includes, an exclusivity agreement, sometimes called a lock-out agreement, which prevents the seller from negotiating with rival buyers for an agreed window. Under English law, most of the terms in a Heads of Terms are not legally enforceable unless the parties clearly state otherwise.
Clauses on confidentiality, exclusivity, costs, and governing law are the usual exceptions and are normally drafted as binding. The document is not a substitute for the full contract that follows, but it sets the direction of travel and reduces the chance of the parties talking past each other during the detailed drafting stage.
How to use this document
- Work out who the real parties are. Identify the correct legal entities on both sides, not just trading names. If a group company, parent, or individual shareholder needs to sign up to confidentiality or exclusivity, name them properly. Getting the parties wrong at this stage creates problems that carry through into the main contract.
- Agree the commercial shape of the deal. Set out the subject matter, the headline price or pricing mechanism, payment terms, key deliverables, and any conditions precedent such as due diligence, board approval, regulatory consent, or third party consents. Keep the wording tight but clear enough that both sides recognise the deal they think they are doing.
- Decide which clauses are binding and which are not. This is the single most important drafting decision. State clearly that the commercial terms are subject to contract and not legally binding, then separately identify the clauses that are binding from signature, typically exclusivity, confidentiality, costs, and governing law. Ambiguity here causes the worst disputes.
- Set a realistic exclusivity period. If exclusivity is included, fix a defined window during which the seller will not talk to other buyers. Make the obligations specific: no soliciting, no negotiating, no providing information to third parties. Include remedies or consequences if the lock-out is breached, and a clean end date so neither side is trapped indefinitely.
- Plan the move to the full contract. State who is drafting the long-form agreement, a target timetable, and how costs are handled if the deal collapses. Include dispute resolution and governing law for the binding parts. Sign, date, and keep a clean copy, because this document will be referred to repeatedly as the main contract is negotiated.
Common questions
Q Is a Heads of Terms legally binding?
Usually only in part. The commercial terms are normally marked subject to contract and are not enforceable, so either side can walk away before the main contract is signed. However, clauses covering exclusivity, confidentiality, costs, and governing law are often drafted to bind immediately. Whether a particular clause binds depends on the wording, so the document needs to be clear about which provisions are intended to have legal effect.
Q What is the difference between Heads of Terms, an MOU, and a Letter of Intent?
In practice there is little meaningful difference under English law. Heads of Terms, Memorandum of Understanding, Letter of Intent, and Term Sheet are all labels for the same kind of preliminary document that records the main points of a proposed deal. What matters is the content, not the title. Courts look at the substance of the wording to decide whether any part is legally binding, regardless of what the document is called.
Q What is an exclusivity agreement and why is it used?
An exclusivity agreement, sometimes called a lock-out agreement, stops a seller from negotiating with other potential buyers for a set period. Buyers often insist on one before spending money on due diligence and legal fees, because they want confidence the seller will not take a better offer halfway through. The period should be long enough to reach exchange but short enough that the seller is not stuck if the buyer stalls.
Q Can either party pull out after signing Heads of Terms?
Generally yes, as long as the commercial terms were expressed as non-binding. Walking away may still breach any binding clauses, such as exclusivity during its lock-out period, or confidentiality. There can also be reputational and commercial consequences, and costs already incurred may be lost. The legal position depends on exactly how the document was drafted, which is why the binding and non-binding parts need to be clearly separated.
Q Do Heads of Terms need to be in writing?
They do not strictly have to be, but writing them down is the whole point. A signed written document gives both parties a shared reference for the deal they are negotiating and reduces arguments about what was said at meetings. It also makes it easier to show which clauses are binding. Oral understandings at this stage are a recipe for disputes and are best avoided.
Q Should Heads of Terms be marked 'subject to contract'?
Including the phrase subject to contract is a common way to signal that the commercial terms are not legally binding until the full contract is signed. On its own the label is not conclusive, but it is strong evidence of intent. For clarity, the document should also contain an express clause stating which provisions are non-binding and which are binding from signature, rather than relying on the label alone.
Q Do I need a Heads of Terms for every commercial deal?
No. For straightforward, low-value transactions they often add little and slow things down. They earn their keep on larger or more complex deals, such as share or asset sales, joint ventures, property investments, or long-term supply arrangements, where there is real work to do before the main contract and both sides want some protection during that period. For simple one-off purchases, a direct contract is usually enough.
Sources
This guide is based on primary UK law and official guidance.
- Guidance · UK GovCompetition and Markets Authority: mergers guidancegov.uk
- Guidance · UK Govgov.uk: running a limited companygov.uk
Legal disclaimer
This article is for general information only. It is a tool to help you find your way — not legal advice, and not a substitute for speaking to a qualified adviser about your situation.