A heads of agreement is basically a pre-contract arrangement between two parties that helps outline the general points and conditions that need to be met in a contract. If one party is planning on leasing real estate from another, for example, then they might come together to agree upon general conditions for the lease. A heads of agreement can be created by the two parties from this meeting that sets forth the general terms to be established. This can then be used as a blueprint in the creation of the actual lease contract between the two parties, to which the agreement can be amended or otherwise ignored.
The purpose of a heads of agreement is to establish certain criteria and terms that need to be agreed upon in a legally binding contract. It can be seen as an agreement to come to further accord upon the conditions of a contract. The language used in the agreement is usually, and intentionally, vague but identifies the major terms and conditions that need to be dealt with. In general, this type of document is not considered to be legally binding between the two parties, unless otherwise indicated within it.
A simple example of this type of agreement could be created between two parties that wish to enter into a lease between each other. Each party can come together and discuss the general terms that need to be indicated and any specific or unusual conditions that should be a part of the actual legal contract between them. This planning stage is used to create a heads of agreement between the two parties, which provides expectations and information about what each party wants. While they can draft this themselves, lawyers and other representatives are often used to create the document to ensure that it is as detailed as necessary.
Although a heads of agreement might be signed by both parties involved in a contract, it is not legally binding and the conditions set within it cannot typically be used for legal recourse. It is simply a document used in the planning stages of a contract and functions as an outline for the actual legally binding one. A heads of agreement can become part of a binding contract, however, if both parties agree to it. This can be done in some instances in which certain conditions within the agreement are established in exacting detail, allowing it to become part of a binding contract and making these terms enforceable by law.