What is a Term Sheet?
When you agree to a contract or a deal, you’ll have what is called a term sheet. The term sheet is a document that is used to outline specific terms in a formal agreement. It gives you a point of reference to make sure both parties understand exactly what is expected from all sides.
What is a Term Sheet Used For?
Term sheets are commonly found when dealing with leasing negotiations, selling or purchasing shares, venture arrangements, and mortgage dealings. Their purpose is to document critical terms before the formal contract is reviewed and agreed upon.
A term sheet must be precise in its wording and definitions. If there is not enough information, there is room for uncertainty. When dealing with business transactions, you don’t want to be vague, but you don’t want to be too detailed.
Examples of what you’ll see in a term sheet include:
Assets to be purchased – what is the buyer gets, and what does the seller expect
Required conditions – any conditions that must be met first
Key terms – critical terms
Legal enforceability – legally binding documentation
Costs and fees – who is responsible for what expense
Confidentiality – guarantees personal information is kept confidential
Agreement termination – when and how the agreement can be terminated
A Few Last Words
A well-written term sheet is critical for the successful completion of any business transaction. Term sheets can be non-binding or binding, but you should always refer to an attorney to ensure everything is defined appropriately.