LEGAL
By James O’Connell, Partner Mayo Wynne Baxter, solicitors
BEWARE MEMORANDUMS OF UNDERSTANDING
THEY CAN BITE It is a common occurrence: you’ve had exploratory discussions with a potential supplier/investor etc., leading to an understanding of core issues that justifies starting serious negotiations. You don’t want the understanding fixed in stone just in case you need to renegotiate or the negotiations go nowhere. Meanwhile, the supplier wants to rely on that understanding – either because there is no point in further negotiating without it or because it needs to spend money on the next stage and is only will-
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ing to do that if the understanding can be relied upon. So, despite having diametrically opposed motives, you both sign a memorandum of understanding (also known as a ‘heads of terms’, and sometimes as a ‘term sheet’). It is written loosely to accommodate the contradictory motives. Typically, memorandums (or memoranda) focus on headline topics: who, what, where, when and how much? Stage two of negotiations cover the 1,001 points
