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Heads of Terms, Heads of Agreement, Letters of Intent: they all refer to and mean the same sort of thing.

They serve the same purpose.

In business, they also go by the names of “term sheets”, “memorandum of understanding”, “letters of understanding”, “heads of agreement”, “heads of terms agreement”, “letters of interest” and “term sheets”.

In the construction industry, heads of terms are often wrapped up and packaged as letters of intent or “LOIs” for short.  It’s just different terminology with the same meaning.

They’re usually exchanged by 2 businesses to reach what businesses sometimes call the “commercial agreement” – to distinguish from the sort of agreement which is legally binding. (We’ve included 3 templates below: the non-legally binding variety, contractual form and a Letter of Intent)

Once you have commercial agreement with Heads of Terms, businesses go on to prepare the formal contract document.

Here’s how. And when they can become legally binding by accident.

A breach of contract is material non-compliance with the terms of a legally binding contract.

Breaches of contract give rise to:

• a right to monetary compensation, that is damages, and
• if it’s serious enough, the right to terminate the contract.

It’s a necessary part of any legally binding contract that each party expects to obtain the benefit of the contract entered into.

But then it’s breached. What happens then? How do legal rights to damages and termination play out?

Restrictive covenants and non-competition clauses prevent people from doing things they are entitled to do.

Depending on how they’re written into a contract, they apply:

• during the contract, and
• for a limited time only after the contractual relationship ends.

And non-compete clauses are usually difficult to enforce.

Two different people could have exactly the same contract – word for word. The restrictive covenants could be enforceable against one person, but not the other. The restrictions may be justifiable against one of them, but not against the other.

If you can identify the type of clause and what it is looking to prevent, you’ve got a better idea of:

• the type of competition which is prevented, and
• how enforceable the non-competition clauses might be.

With so many different sorts of contracts out there, you can expect to be doing contract reviews on a whole host of different agreements.

Partnership agreements, contracts with independent contractors, suppliers, software contracts and intellectual property: all sort of business contracts and legal documents.

All contracts will have some effect on your business. Some big, some small.

If you haven’t read it or don’t understand it, you’re exposing your business to unknown risks.

What do you look for in a contract?