Heads of Terms for Commercial Agreements in New Zealand: What to Include

If you’re negotiating a new commercial deal, it’s normal to want to “get something down in writing” before you spend too much time (and money) going back and forth.

That’s where a Heads of Terms document can be a really practical tool. It helps you and the other party confirm what you’ve agreed in principle, what’s still being negotiated, and what needs to happen next before a final contract is signed.

Below, we’ll walk you through what Heads of Terms are in New Zealand, when you should use them, what to include (and what to be careful about), and a simple template you can adapt for your business.

What Are Heads of Terms (And Are They The Same As A Heads of Agreement)?

In New Zealand, “Heads of Terms” is commonly used to describe a short document that summarises the key commercial terms you and another party have discussed and want to progress.

You might also see similar labels like:

• Heads of Agreement
• Term Sheet
• Memorandum of Understanding (MOU)
• Letter of Intent (LOI)

In practice, these documents often do the same job: they set out the main deal points so everyone is on the same page before the long-form contract is drafted.

For many small businesses, a Heads of Terms document is particularly useful when:

• the deal is complex (multiple deliverables, staged payments, dependencies)
• you want to lock in the commercial “shape” of the deal early
• you need internal approval or funding before you can proceed
• you’re coordinating third parties (landlords, suppliers, investors, contractors)

Sometimes the term “Heads of Agreement” is used interchangeably with “Heads of Terms”. If you want a version that’s designed to work as a proper commercial document, it can help to use something like Heads of Agreement drafted for your specific transaction.

Why Use A Heads of Terms Commercial Agreement?

A well-written Heads of Terms can save you a lot of time, confusion, and negotiation fatigue later. It’s a “checkpoint” document that makes sure everyone agrees on the core points before lawyers (and long contract mark-ups) get involved.

It Helps Prevent Misunderstandings Early

Commercial deals often break down for a simple reason: two parties think they agreed, but they actually agreed to different things.

Heads of Terms reduces that risk by capturing items like:

• what’s being provided (scope)
• how much it costs (fees, pricing structure)
• when it will happen (timelines)
• who is responsible for what (roles and responsibilities)

It Can Organise The Negotiation (So You Don’t Miss Key Issues)

When you’re busy running your business, it’s easy to focus on the obvious terms (price and timing) and miss the terms that can cause the biggest headaches later (termination rights, liability caps, IP ownership, exclusivity).

A Heads of Terms gives you a structured way to identify “deal breakers” early, rather than discovering them after you’ve already invested significant effort.

It Sets Up The Next Legal Step

Heads of Terms is often the bridge between commercial negotiation and a final contract (like a supply agreement, services agreement, lease, or sale agreement). If you’re going to have the final contract reviewed or drafted, having a clear heads document makes that process faster and usually more cost-effective.

For example, if you know you’ll need a formal Service Agreement later, confirming the commercial terms first means the legal drafting can focus on protecting you (rather than re-litigating the business deal).

Are Heads of Terms Legally Binding In New Zealand?

This is the part that catches a lot of business owners out: a Heads of Terms document can be fully binding, partly binding, or non-binding depending on how it’s written and how the parties behave.

In New Zealand, whether a document is binding generally comes down to contract law principles (offer, acceptance, intention to create legal relations, certainty of terms). Even if you call it “Heads of Terms”, the label isn’t decisive.

The Common Approach: “Non-Binding” With A Few Binding Clauses

Most Heads of Terms are drafted as:

• non-binding on the main commercial deal (so either party can still walk away), but
• binding on specific practical clauses needed during negotiations.

Typical clauses businesses make binding at the Heads of Terms stage include:

• Confidentiality (protecting sensitive information shared during negotiations)
• Exclusivity or “no shop” (preventing the other party from negotiating with competitors for a period)
• Costs (who pays legal and due diligence costs)
• Governing law and jurisdiction (usually New Zealand)
• Good faith negotiation (sometimes included, but it needs careful drafting and can be difficult to enforce depending on how it’s framed)

If confidentiality is important (and it usually is), you may be better off using a standalone Non-Disclosure Agreement at the start of discussions, then using Heads of Terms to capture the commercial deal once things are progressing.

Risk Warning: Accidental “Binding Deal”

One of the biggest risks with DIY Heads of Terms is that you accidentally create a binding contract when you didn’t mean to.

Common triggers include:

• no clear statement that the document is non-binding (or partly binding)
• highly specific terms with no material issues left “subject to” further agreement
• emails or conduct that indicate you’ve started performing the deal
• phrases like “we agree” without qualification

If you’re unsure whether your Heads of Terms is binding, it’s worth getting a quick contract review before you sign or act on it. Fixing a messy situation later usually costs far more than reviewing it upfront.

What Should You Include In Heads of Terms For A Commercial Agreement?

There’s no universal “one-size-fits-all” list, because it depends on your deal. But if you’re a small business negotiating with another business (supplier, customer, distributor, landlord, or partner), these are the terms we commonly recommend you consider.

1) Parties And Background

• Legal names of each party (and NZBN/company number if relevant)
• Addresses and key contact people
• A short description of what the deal is about

2) Deal Structure And Scope

Be clear about what’s being provided and what’s out of scope. Vague scope is one of the fastest ways to end up in a dispute.

• Products/services to be supplied
• Key deliverables and milestones
• Geographic territory (if relevant)
• Exclusivity or non-exclusivity

3) Price, Payment Terms, And Commercials

• Fees or pricing model (fixed fee, hourly rate, retainer, per unit, commission)
• Payment timing (deposit, progress payments, end-of-month)
• Invoicing process and payment method
• GST treatment (often expressed as “plus GST if applicable” - this is general information only and not tax advice; check the right approach for your circumstances with an accountant)
• Late payment interest (if you want it)

4) Term, Renewal, And Key Dates

• Start date
• Initial term (e.g. 12 months)
• Renewal mechanics (automatic renewal vs optional renewal)
• Key deadlines for drafting and signing final agreements

5) Conditions Precedent (What Must Happen Before The Deal Is Final)

“Conditions precedent” are the things that must occur before the final deal goes ahead.

Examples include:

• board approval or shareholder approval
• finance approval
• satisfactory due diligence
• signing of final long-form agreement
• landlord consent (common for leases or premises-related deals)

If your transaction involves investigating risks (financial, legal, IP, customer contracts), you might want the Heads of Terms to be subject to a due diligence process. For larger transactions, a structured legal due diligence approach can be a smart way to protect yourself before you commit.

6) Confidentiality And Information Handling

At minimum, your Heads of Terms should confirm:

• what information is confidential
• permitted uses of confidential info (e.g. evaluating the deal only)
• who it can be shared with (e.g. your accountant/lawyer)
• how long confidentiality lasts

7) Intellectual Property (IP) And Ownership

If the deal involves creating something (branding, software, content, designs, training materials), it’s worth clarifying at Heads of Terms stage:

• who owns pre-existing IP
• who will own new IP created under the deal
• whether licences are required (and on what terms)

This is one of those areas where “we’ll sort it out later” can become expensive later.

8) Liability, Warranties, And Risk Allocation (Even At A High Level)

You don’t need to finalise every legal risk clause in Heads of Terms, but you should at least flag the big-picture positions, such as:

• whether there will be a limitation of liability (and at what level)
• whether either party is excluding certain types of loss (like indirect or consequential loss)
• any required insurances

This avoids a nasty surprise at the “final contract” stage when someone introduces a liability cap that changes the whole risk profile of the deal.

9) Termination (When Can Either Party Walk Away?)

Again, this can be high-level in Heads of Terms, but it’s helpful to confirm:

• termination for breach (and cure periods)
• termination for convenience (if allowed, and required notice)
• what happens on termination (final payments, return of materials, handover)

10) Next Steps And Responsibilities

A practical Heads of Terms should make it easy to move forward. You can set out:

• who will draft the long-form agreement (you, the other party, or lawyers)
• target dates for draft, review, and signing
• who is responsible for providing key information

If your next step involves a premises arrangement, it’s worth lining up a Commercial Lease Review early, because lease terms can have long-term cost impacts that are hard to unwind later.

Heads of Terms Template (Simple NZ Example)

Important: This template is a starting point only. Heads of Terms needs to reflect your deal, and small wording changes can affect whether it’s binding. If you want it tailored to your exact situation, it’s worth getting legal help before signing.

Heads of Terms (Commercial Agreement)

Date: [Insert date]

Parties
1. [Party A legal name] of [address] (“Party A”)
2. [Party B legal name] of [address] (“Party B”)
Together, the “Parties”.

Background
A. The Parties have discussed a proposed commercial arrangement relating to: [brief description of deal].
B. This Heads of Terms records the key terms discussed and the intended process for progressing to a final agreement.

1. Proposed Transaction
1.1 The Parties propose to enter into a [supply/services/distribution/lease/other] arrangement under which:
(a) Party A will: [insert summary]
(b) Party B will: [insert summary]

2. Scope And Deliverables
2.1 Key deliverables include:
(a) [deliverable 1]
(b) [deliverable 2]
2.2 Out of scope (unless agreed in writing):
(a) [out of scope item 1]
(b) [out of scope item 2]

3. Commercial Terms
3.1 Fees / Price: [insert amount or pricing model] (plus GST if applicable).
3.2 Payment terms: [e.g. 14 days from invoice, monthly in arrears, deposit/progress payments].
3.3 Expenses: [who pays what].

4. Term
4.1 Intended commencement date: [insert].
4.2 Intended initial term: [insert] months/years.
4.3 Renewal: [insert renewal mechanics, if any].

5. Conditions Precedent
5.1 The proposed transaction is subject to:
(a) the Parties negotiating and signing a final written agreement in form and substance acceptable to each Party;
(b) [any approvals required];
(c) [due diligence, if relevant]; and
(d) [any other conditions].

6. Confidentiality (Binding)
6.1 Each Party must keep confidential all information disclosed by the other Party in connection with the proposed transaction, except where disclosure is required by law or to professional advisers who are bound to keep it confidential.

7. Exclusivity (Optional / Binding If Included)
7.1 For [insert time period], Party A/Party B agrees it will not negotiate a substantially similar transaction with any third party, except with the prior written consent of the other Party.

8. Costs (Binding)
8.1 Each Party will bear its own costs in relation to negotiation and preparation of documentation, unless otherwise agreed in writing.

9. Non-Binding Nature Of Commercial Terms
9.1 Clauses 6 to 8 (inclusive) and clause 10 are intended to be legally binding.
9.2 Subject to clause 9.1, this Heads of Terms is not intended to be legally binding and does not create an obligation on either Party to proceed with the proposed transaction unless and until a final agreement is signed.

10. Governing Law (Binding)
10.1 This Heads of Terms is governed by the laws of New Zealand and the Parties submit to the non-exclusive jurisdiction of the courts of New Zealand.

Signed
Signed for and on behalf of [Party A]: ____________________ Name: ____________________ Date: _______
Signed for and on behalf of [Party B]: ____________________ Name: ____________________ Date: _______

If your deal is investment or funding related, a more specialised structure like a Term Sheet might be more appropriate than a general Heads of Terms, because it needs to handle items like valuation, conversion mechanics, and investor rights more precisely.

Common Mistakes Businesses Make With Heads of Terms (And How To Avoid Them)

Heads of Terms should make your deal easier. But if it’s unclear or rushed, it can actually create risk.

Mistake 1: Leaving Key Commercial Terms Too Vague

“We’ll work it out later” sounds flexible, but it often becomes the source of disputes.

To avoid this, make sure you capture at least:

• scope (what’s included)
• price and payment timing
• timeframes
• what success looks like (deliverables/milestones)

Mistake 2: Not Being Clear On What’s Binding

Many disputes start because one party thinks the deal is locked in, and the other thinks it’s still “just a discussion”.

Fix this by:

• explicitly stating what is binding and what is not
• using consistent language (avoid mixing “agree” with “subject to contract” wording)
• not starting performance (work, delivery, payment) until the final agreement is signed, unless you’re comfortable with the risk

Mistake 3: Skipping Confidentiality Or Exclusivity Protections

If you’re sharing pricing, customer lists, marketing plans, or technical know-how, you should treat confidentiality as a “from day one” issue.

You can cover this in Heads of Terms, but for higher-risk discussions, a standalone Non-Disclosure Agreement is often the cleaner approach.

Mistake 4: Treating Heads of Terms As The Final Contract

Heads of Terms is usually not the right document to rely on for day-to-day operations long term. It normally won’t cover the detailed protections businesses need, like:

• service levels and acceptance criteria
• privacy and data handling (if personal information is involved)
• indemnities and liability caps
• dispute resolution processes
• termination mechanics and handover obligations

For most commercial arrangements, you’ll still want a properly drafted agreement (and it’s worth having it reviewed before signing). A quick contract review can be the difference between a contract that protects your cashflow and one that creates ongoing risk.

Key Takeaways

• A Heads of Terms commercial agreement is a practical way to summarise the key commercial terms of a deal before you move to a final long-form contract.
• In New Zealand, Heads of Terms can be binding, non-binding, or partly binding depending on the wording and the parties’ conduct, so it’s important to be explicit.
• Most businesses use a “non-binding commercial terms” approach while making certain clauses binding, such as confidentiality, exclusivity (if needed), costs, and governing law.
• Strong Heads of Terms should cover parties, scope, pricing, timelines, conditions precedent, confidentiality, risk allocation (at least at a high level), termination, and next steps.
• Common mistakes include vague scope, unclear binding status, missing confidentiality protections, and relying on Heads of Terms as if it were the final contract.
• If you’re unsure, getting legal help early (before you sign or start performance) can save significant time and cost later.

If you’d like help drafting or reviewing Heads of Terms for your next commercial deal, you can reach us at 0800 002 184 or team@sprintlaw.co.nz for a free, no-obligations chat.