Heads of Agreement

Checklist

• The Heads of Agreement should be dated and validly executed by both parties
• There should be an explicit statement that the Heads of Agreement is meant to be binding
• If an essential term is absent or uncertain, the agreement will be void for uncertainty or construed as incomplete, ie. the parties should have agreed the terms that are regarded as essential, for example:

  – In a simple Heads of Agreement to lease a building the following matters must have been agreed and should be accurately identified – the parties, the premises, the term of the lease, the rent or other consideration payable, review dates and rights of renewal

• In the above case there was express reference in the Heads of Agreement to matters “not agreed”. The Court determined that the matters marked not agreed had such substantial financial implications for both parties that they were marked not agreed as an indication of their importance and were therefore essential terms.
• There should be a provision for agreement on outstanding issues to be reached by resort to an expert or an arbitrator or by another mechanism (in the above case, the Court determined that the matters not agreed were “of a kind which could not be expected to be settled for the parties by a Court or other third party” ie. the Court was unable to fill the remaining blank spaces.
• You should ensure that all documents that are referred to as “attached” to the Heads of Agreement are attached, and that the parties have initialled all amendments and the foot of each page.
• If there is a particular form of agreement to be entered into at a later date (for example, the Auckland District Law Society Lease), then this should be attached or clearly identified in the Heads of Agreement to avoid uncertainty.
• The Heads of Agreement should be clearly drafted in plain English and
  accurately reflect the intention of the parties with all the essential terms and conditions incorporated.