What is a Term Sheet?

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What is a Term Sheet?

July 18, 2022         Alana Jonovski

A term sheet is a pre-contractual written document which sets out the key terms of a prospective transaction between two parties. It is also known as a letter of intent, memorandum of understanding or heads of agreement. 

A term sheet serves as a starting point for more detailed agreements and can assist the parties in negotiating the final terms of the agreement. 

What is a Term Sheet Used For?

Commonly, term sheets are used for sale of business transactions, share sales and capital raising. A term sheet can also be used in:

  • Commercial leasing negotiations
  • Joint venture or partnership agreements
  • Other business transactions

Is a Term Sheet Legally Binding?

A term sheet can be binding or non-binding, depending on what the parties specify in the agreement. Term sheets will often explicitly state if they are legally binding or not.

What is Included in a Term Sheet?

A term sheet can include anything relating to the agreement. Some key inclusions of a term sheet include:

  • Details regarding what the transaction is
  • Enforceability of the transaction 
  • What information is to be kept confidential 
  • Costs associated with the transaction 
  • How the transaction can be terminated 

What are the Benefits of a Term Sheet?

A term sheet sets out the agreement generally and allows both parties to discern the essence of the agreement. Term sheets provide evidence that the parties intend to enter into a contract with one another. This gives the parties the confidence to invest their time and money into finalising the agreement. Term sheets also act as a mechanism for addressing pre-contractual issues such as confidentiality, payment of deposits and the due diligence process. 

Key Takeaways

A term sheet is a pre-contractual written document outlining the key terms of a proposed transaction. It is not legally binding unless both parties have explicitly agreed to this in the agreement. The key terms laid out in the term sheet can include anything relating to the agreement such as enforceability and confidentiality. 

Should you require further legal advice please contact OpenLegal by filling in the form on this page or calling 1300 337 997.

About Alana Jonovski

Alana JonovskiAlana is a legal intern at OpenLegal whilst studying a Bachelor of Laws at Macquarie University. Alana’s key areas of interest include commercial law and property law.