Background -
It is common practice for parties to property and business transactions (such as sales, purchases and leases) to sign a heads of agreement once an agreement has been reached in relation to the key commercial terms of the transaction, but prior to the preparation and entry into a formal contract. Difficulties can occur when the parties only intend that a binding agreement arise upon entry into the formal contract, but the heads of agreement in fact constitutes a binding agreement.
Recent Case -
In Confidential and Commissioner of Taxation [2013] AATA 76, the vendor's agent had prepared a heads of agreement for the sale of a business based on a pro forma heads of agreement. The vendor and purchaser signed the heads of agreement prior to obtaining legal advice. The agent did not intend that the heads of agreement bind the parties other than in respect of exclusivity and confidentiality, and understood that a formal contract would be required if the parties intended to proceed with the transaction.
The Administrative Appeals Tribunal of Australia (Tribunal) considered that the relevant question was whether the heads of agreement operated as a legally binding document between the parties. It was determined that the agent's intentions in relation to the effect of the heads of agreement, and the subjective intention of the parties, were irrelevant.
Please see full publication below for more information.
