It is common for ‘heads of terms’ to be agreed in relation to a contract. This is where the parties discuss what they want from the deal and agree each others respective requests. For example, I want to enter into a Lease for a commercial property. I will negotiate with the Landlord and agree a term and a rent. At this stage though, no contract has been entered into because there is no consideration.
The contract would be entered into and enforceable when we signed the Lease confirming the date I was to take occupation.
In the case below, I am extremely surprised that this made it into court and was not struck out at the earliest possible opportunity. It appears heads of terms were discussed between the respective parties so that they could explore the possibility of working together. This is far removed from actually closing the deal.
Richard Howlett - Partner
Many very large commercial contracts are agreed orally, never making their way into writing, and the question of when a deal is ‘closed’ can thus be of crucial importance. In one case, the High Court analysed exactly what was said during a meeting at a City wine bar in order to determine whether a valid contract had been concluded.
A financial broking company was considering appointing consultants to provide risk management, legal, operational and compliance services. The consultants argued that a two-year deal had been concluded during the wine bar meeting. However, the company argued that those who attended were ‘just chewing the fat’.
After hearing oral evidence from those who were there at the time, the Court found that, although agreement on all important heads of terms had been achieved, no legally binding agreement had been reached. At no point had those at the meeting contemplated that a contract would be entered into orally.
