A heads of terms or HoT is an agreement in principle between two parties but which is subject to a formal contract. It sets out the key commercial principles which the parties have discussed during their negotiations and which they intend will form the basis of a future, more detailed contract. Whilst heads of terms evidence serious intent and have moral force, they do not normally legally compel the parties to conclude the deal on those terms (or at all). But they can be a useful first step to document the key principles of an agreement and be used when drafting the legal agreement to put things in place.