MoUs etc - A Reminder
Memorandum of Understanding (MoU), Letter of Intent (LoI), Term(s) Sheet, Heads of Agreement, Heads of Terms etc - what's the difference?
In concept, these are the same
However they’re called different things in different areas of business and in different places. You’ll have a better idea than I do of the terms used in your jurisdiction
I asked a former colleague who specialised in UK M & A whether there was a standard / preference in his area and this was his reply
There is no standard. In my experience I would rank them:
- LOI
- Term(s) Sheet
- Heads of Agreement
- MOU, and
- Heads of Terms
What next after signing the MoU etc.?
The parties will instruct their lawyers to draft and negotiate a contract which reflects the agreement set out in the MoU etc
Most of the time, the parties will sign a contract but sometimes the contract negotiations will break down and they won’t
In this case, neither will have redress / a remedy / recourse against the other unless the MoU etc includes binding commercial obligations which have been breached
Legal basis
Four things have to be present in order to create a contract
- offer
- acceptance
- consideration, and
- intention to create legal relations
In MoUs, companies use words such as the following to show that they don’t have this intention:
Except for Para X (governing law) which is legally binding, this MoU is not intended to and does not create legal relations
Real property - subject to contract / documentation
In English real property transactions, draft documentation and correspondence will be marked subject to contract to prevent a contract coming into existence by accident before it has been signed
It’s because of the wording of the legislation which says that, unlike most contracts, contracts for the sale of land have to be in writing
On a wider level, when someone has signed an MoU etc, they might say that they’ve agreed a deal with X subject to documentation