Sellers misread heads of terms in both directions. Some treat the whole document as binding and concede points they never needed to concede. Others treat none of it as binding and hand over a long exclusivity period without thinking — which is the one clause in it that genuinely costs them.
What Binds, What Does Not, and What Belongs in It
Generally binding: confidentiality, the exclusivity period, costs provisions, and any governing law clause. Generally not: price, structure, conditions and timetable, which are usually expressed to be subject to contract. The wording matters — a document not clearly marked subject to contract, or drafted so that it reads as a concluded bargain, can create arguments nobody wants, and checking that takes a minute. Heads of terms should be short. They exist so the lawyers draft the same deal and so the few binding points are fixed; a long one means the sale agreement is being negotiated twice, once in a document that does not bind and once in one that does, which wastes money and breeds inconsistency. What belongs: the parties, what is being sold, the structure, the price and how it is payable including any retention or deferred element, the key conditions, exclusivity, confidentiality, costs, and a clear subject-to-contract statement. And before any of it, the NDA — genuinely binding, and worth more than a signature on a template when the person reading your customer list and margins may be a competitor. Check its duration, whether advisers and funders are covered, what happens to copies if the deal dies, and whether it restrains solicitation of your staff and customers.
What Exclusivity Really Costs
During exclusivity you cannot speak to another buyer. Your business is being examined by someone who may not proceed. Staff, customers and suppliers begin to sense something. Your own time goes into due diligence responses rather than into trading, which in an owner-managed business means the numbers can actually soften while the deal is running. And your leverage falls every week, because the buyer knows you have no alternative and that walking away costs you the months already spent. If they withdraw at the end of it, you restart with less time, less energy and a distracted business. So negotiate it: keep the period as short as is realistic; tie it to the buyer doing something concrete — producing evidence of funding, instructing advisers, delivering a due diligence list within a set time; and make it lapse automatically rather than roll on. The same logic explains why the price in heads of terms is an anchor that moves in one direction. It is difficult to raise afterwards and straightforward for a buyer to reduce once due diligence turns something up — with the seller negotiating from inside exclusivity. That is the strongest practical argument for fixing the business before going to market rather than conceding on each finding afterwards.
Been Sent Heads of Terms?
Worth an hour before signing rather than a month afterwards - particularly the exclusivity period, the costs clause and whether the document is properly subject to contract.
Call 01 5827148