A term sheet (sometimes referred to as a memorandum of understanding, heads of agreement or letter of intent) is an important document which sets out the commercial terms upon which persons or entities agree to transact with one another. The term sheet is often the first recordal of a proposed transaction and is the document which forms the basis of the negotiation of the formal agreements required to implement the transaction. Before entering into a term sheet, the following considerations should be taken into account:

Commercial issues

The purpose of a term sheet is for the parties to agree upon the material commercial terms which constitute the proposed transaction. The relevant commercial terms will depend on the nature of the proposed transaction. As such, it is important that the parties identify and agree on each of the material commercial issues pertaining to the proposed transaction. A failure by the parties to agree on one or more of the material commercial issues may result in a breakdown of negotiations down the line and a failure to conclude the transaction.

Binding vs Non-binding

A term sheet may be fully or partially binding or non-binding. Many parties prefer entering into non-binding term sheets, with the aim of concluding binding agreements later. However, term sheets are often entered into on a partially binding basis. The commercial terms, whilst agreed in principle, should not be binding on the parties until detailed agreements containing all of the relevant rights and obligations are concluded.  Other rights and protections such as exclusivity, due diligence, confidentiality, costs and governing law, however, can be made binding on the parties from the conclusion of the term sheet. This is the basis upon which most parties, in our experience, conclude a term sheet. A term sheet must clearly provide which terms, if any, are binding and enforceable.


Parties may agree to provide a unilateral or reciprocal exclusivity period, during which the parties agree not to engage with any third parties in respect of the proposed transaction or any substantially similar transaction. This is often an important right because significant costs may be incurred by the parties in preparation for, and during, the negotiation and conclusion of the transaction. Typically, parties will expect to receive a limited period of exclusivity prior to incurring these costs. The duration of the exclusivity period is dependent on the nature of the transaction.

Due diligence

A prospective purchaser or investor may require legal, financial and/or technical due diligence reviews of the target entity and its operations prior to the drafting of definitive agreements and the conclusion of the transaction. The nature, extent and duration of the due diligence review, where applicable, should be agreed between the parties and recorded in the term sheet.


Where the parties have not entered into a confidentiality and non-disclosure agreement, it is imperative that the term sheet contains a confidentiality provision which protects each party’s confidential information and the exchange of information during the negotiation and implementation of the transaction.


The parties should agree who will be liable for the costs incurred by each (or all) of the parties in respect of the preparation, negotiation and implementation of the term sheet and all agreements.

Governing law

The parties should agree and record the governing law applicable to the term sheet and the agreements required for the transaction.

Seek advice

Appropriate legal, financial and technical advice should be sought before concluding a term sheet. A good term sheet should save the parties time and money in negotiating and concluding the transaction. A bad term sheet, on the other hand, will have the opposite effect. All financial and technical elements should be confirmed by each party when entering into the term sheet, as the re-negotiation of these provisions at a later stage, whilst possible, will result in a protracted negotiation process with increased costs incurred by both parties. It is strongly recommended that legal advisors provide input before the term sheet is finalised in order to ensure that each party’s rights and interests are adequately protected and clearly articulated.