NEGOTIATING THE HEADS OF AGREEMENT

The Heads of Agreement may be thought of as a bundle of smaller agreements. Together they express the substance of the future relationship of the signatoriesSignatory: any person or organization who has signed as a signatory to a document or agreement..

Everything is up for discussion until the parties sign the Heads of AgreementHeads of Agreement: a non-binding summary of the main issues on which the parties intend to base an agreement.. Once signed, it is an agreement in principleAgreement in Principle: an agreement which participants are not legally obliged to keep. It is therefore non-binding., like an engagement ring. It is symbolic of the parties' commitment to one another, binding them in morally but not legally. The signatories to a Heads of Agreement do not attempt to make substantial changes to the basis of the relationship they envision. Lawyers translate the Heads of Agreement faithfully, section by section, into the Shareholder AgreementShareholder Agreement: a legally-binding document which describes the mutual obligations of the parties to a Joint VentureJoint Venture: commonly, a business to which two or more parties contribute the essential land, capitalCapital: cash, property, equipment, services, and contracts or leases., and services, in return for a share in its ownership and control. (Note: the Joint Venture is very strictly defined under Canadian law.).. Once signed, the Shareholder Agreement is legally binding. 

To start the negotiation, review each party's understanding of the agenda. (See Module 4, “Establish the Agenda,” p. 4-36.) The agenda established that a deal was possible, given the key features cited. The responsibility of the negotiators as they enter this stage of the negotiation is to adhere to that agenda as closely as possible.

The transition from an agenda to the framework of a legal agreement is worth a moment's pause. What seemed clear when you were discussing the agenda can become fuzzy. Issues which you thought were settled may re emerge. As negotiators, be precise about what you understood and about what is important to you. Conflict of one kind or another is bound to occur as you negotiate the Heads of Agreement. By checking in with one another at the start, you can reduce the number and seriousness of the disputes.

By this stage it is assumed that all parties are in earnest about the negotiation. They have essentially made promises of “exclusivityExclusivity: a promise not to negotiate another deal that would compete with the one now being concluded.” and “confidentialityConfidentiality: a promise not to reveal the contents of an agreement to anyone..” They will not negotiate another deal that would compete with this one, nor will they reveal its contents to anyone. These promises protect the effort and costs incurred by each party to undertake the transaction. They also assure that nobody present considers the negotiation a frivolous exercise.

The rest of this module defines and illustrates each of the elements within a Heads of Agreement in the order in which they are usually negotiated.