Heads of Agreement – when are they binding?

A recent judgment in New South Wales has clarified that a Heads of Agreement is generally considered binding if, at the time of entering into the agreement, the parties intended to be immediately bound by it.  This holds true even if the parties intended, and the Heads of Agreement between the parties records, that additional matters are to be agreed and a formal contract executed at a later time.  Further, any dispute about the subject matter of a Heads of Agreement will not affect the binding nature of that agreement.

The case highlights that parties contracting on a preliminary basis should take great care when considering the use of a Heads of Agreement.