Understanding Heads of Agreement Contracts
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Heads of Agreement documents are unique in the way that they operate. Unlike most contracts that are inherently binding, this agreement is basically made stating that two parties agree on something, and that there is no binding nature to the contract. This document helps outline the main issues that are involved in a partnership or other type of agreement. This is only enforceable if it is adopted into what is known as a parent contract and agreed upon. Ultimately, the contract is not going to be legally binding until this occurs.
It is important for businesses and both parties to be aware of the details of a heads of agreement contact so that they can understand whatneeds to happen and how this becomes a legally binding document. The agreement by itself is merely that. Without being adopted into a bigger contract, it has no legal relevance and can easily be taken advantage ofby one or both parties. When this type of agreement is entered, people don't usually intend for it to be a binding agreement because there are anumber of things that have to be determined. The 'heads' basically states that both parties are entering into the agreement in good faith, which will help make negotiations easier and prove their commitment.
There have been legal battles in the past where the binding nature of a heads of agreement has been challenged, and in most cases, it is agreed that this is NOT a binding document and that there is no basis for a legal case based solely on this agreement alone. Instead, the law statesthat there must be a bigger contract that the 'heads' becomes a part ofin order for it to become a legally binding document.
In order for a heads of agreement to be done correctly, it should be dated and executed validly by both parties that are entering the agreement. There should also be a statement that this contract IS meant to be binding, to avoid confusion or legal issues later. Parties should agree that terms are an essential part of the process, as well. There should be other provisions in this document to ensure that everyone is on the same page and that everything is settled. In the event that things cannot be settled, a provision for assistance from an arbitrator or a court should be included, as well. It is often best to do a little research before creating this type of document so that you know what youare getting into. |
