This article will answer a question we regularly get asked by LegalVision customers: “What is a Term Sheet?”. A term sheet is a pre-contractual document that outlines the main terms and conditions of agreement between parties in relation to a proposed transaction (e.g. sale of an asset). LegalVision has two term sheets, being a general term sheet which is broad enough to cater for many situations (“Term Sheet / Heads of Agreement – General”) and a term sheet that caters specifically for the sale of a business (“Term Sheet / Heads of Agreement – Sale of Business”). You may need to add further agreed terms into the term sheet to reflect the matters agreed by the parties.
A term sheet is appropriate when you want to document the main points agreed by two parties to a negotiation before reducing those main points to writing in a legal contract. The parties can then base any further legal documents on the terms agreed and documented in the term sheet.
A term sheet generally serves the same purpose as a heads of agreement, memorandum of understanding or letter of intent, although the form of the document may differ.
A term sheet may be binding or non-binding on the parties. If it is binding, and only subject to preparation of formal legal documentation, then the term sheet should be detailed and so far as is possible outline all the clauses to be included in legal documentation to be subsequently prepared by the parties (or their legal representatives). If it is non-binding then there may be in principle agreement of the parties in relation to fundamental terms or it may be in the form of a proposal, not a document agreed by both parties, setting out the terms proposed by one of the parties in relation to the proposed transaction.
After parties have executed a term sheet a legally binding contract should be negotiated, prepared and executed by the parties, which should contain detailed provisions and govern all aspects of the proposed transaction (e.g. “Sale Contract – Assets – Long Form”).
Now you’ll never need to ask “What is a Term Sheet?” again! For more information contact LegalVision on 1300 544 755 and speak with one of our lawyers today.