A Heads of Agreement isn’t legally binding unless you clearly specify which clauses are. Most HOAs fall apart because developers mistake signatures for commitment. The document only works when you interpret buying signals correctly, structure enforceable confidentiality and exclusivity clauses, and record genuine agreement before obtaining signatures.
What you need to know:
- HOAs are not legally binding except for specific clauses you designate as enforceable.
- The ideal time for an HOA is after you’ve confirmed agreement via email, not before.
- Only confidentiality, exclusivity, and good faith clauses generally carry legal weight.
- Weekly meetings during the HOA period help prevent deal deterioration.
- Pushing for signatures before real commitment is there wastes your time and money.
I watched a 40,000sqm warehouse pre-commitment collapse after both parties signed the Heads of Agreement.
The document stipulated certain actions to be taken within specified timeframes. The other party failed to comply. They walked away from the HOA because they knew there would be no repercussions.
It took over a year to revive the deal.
Why This Matters
Here’s the risky part: most developers see a signed HOA as settled.
A Heads of Agreement isn’t legally binding unless explicitly stated. I’ve seen this happen many times. The other party knows they’re not committed, so they walk away when conditions change.
In 40 years of structuring deals across residential, commercial, and mixed-use developments, I’ve learned one thing: an HOA is only as protective as the strategy behind it.
The difference between a document that protects your interests and one that causes costly issues? Understand what you’re creating before you start building.
What an HOA Actually Does
I compare an HOA to getting engaged.
The engagement ring represents a promise to collaborate towards a shared goal. When you get engaged, you’ve spent time deciding who does what, where you’ll live, and how finances are managed.
Marriage is the formal agreement made. Both parties are committed.
But an engagement ring doesn’t legally compel you to marry. Neither does an HOA obligate you to go through with the deal.
The HOA establishes a framework for lawyers to draft a formal, legally enforceable agreement. It records what has been agreed upon at a specific point in time. It provides sufficient detail for negotiating the binding contract.
The issue arises when salespeople feel forced to obtain a signature on paper to report commitment upstream. That warehouse deal? The client signed under duress, convinced all details would be sorted out during formal document negotiations.
When the HOA collapsed, the client felt pressured and beaten up. The fact that the deal came back showed they were ready to do business. The sales process hadn’t met their needs.
Everything revolves around relationships. High-pressure sales are effective in some settings. However, not in massive, high-cost commercial deals. You wouldn’t pressure a company into committing to a new building without allowing full due diligence.
Key Insight: An HOA indicates commitment but doesn’t establish it. Relationships are more important than signatures in high-value commercial deals.
How to Read Commitment Signals Before the HOA Stage
I won’t attend the HOA stage unless I’m sure there’s a deal to be made.
People send signals. If someone is interested in what I’m offering, there are clues in the questions they ask and the actions they take.
Someone who is purchasing will inquire about the next steps. They will keep asking more questions directly related to the proposed process. These questions, the actions taken, and their availability to speak are all clear signs.
Busy people prioritise the things that matter to them.
The first thing I check is for agreement on all basic terms through email correspondence. Having emails between parties where they generally agree on what’s intended provides the basis for negotiating final terms.
Once all significant issues are agreed upon, I ask the other party if they’re prepared for an HOA to summarise what’s been agreed and sign it, so lawyers can begin formalities.
I always seek the other party’s agreement to proceed with the HOA. If they say no, I ask why and work to resolve the issues.
If people are cagey about their needs or why they need something, they are either not genuine or unsure. You need to question them carefully, but you don’t want anyone feeling like they’re being interrogated.
If they still won’t provide you with clarity, they’re probably trying to fish for information. They’re using your proposal as leverage elsewhere.
Key Insight: Establish documented agreement via email before requesting an HOA. If they won’t commit to next steps or remain vague about needs, they’re not prepared.
What Every HOA Must Include
Most HOAs are basically the same.
They describe the activity in sufficient detail so everyone understands what’s happening. They outline the parties involved, the land, and each party’s obligations. They also explain the financial details of the deal.
These are common to every HOA.
The details within this framework vary depending on the deal—whether it’s a pre-lease of a new warehouse or office building, a joint venture between parties, or a development agreement between a landowner and property developer.
But the fundamentals remain the same.
I always prioritise meeting the other person’s needs before my own. It’s easier to get what I want once they’ve had their needs met. Until then, they’ll be wary.
When drafting the obligations component, parties should agree on who does what. This section varies in detail depending on the needs of both parties.
My preference is to elaborate. Too many issues arise when one party assumes the other will do something, but the other party isn’t aware of this.
Always be crystal clear about defining the obligations of the parties.
Key Insight: Every HOA covers parties, land, obligations, and financials. The details differ, but clear obligations prevent assumptions that jeopardise deals.
Which Clauses Are Enforceable
A typical HOA is unenforceable except for the confidentiality and exclusivity clauses, which are generally legally binding for a certain period.
This is where you incorporate protection into the document.
Initially, your commercial correspondence with another party should be marked as “commercial in confidence.” It should not be copied to a large group of people. Within the HOA, you state that the terms and conditions are confidential. They must not be shared outside the parties’ legal and financial advisors, who are also required to keep the information confidential.
The HOA should also include a clause stating they agree to negotiate with you solely during the exclusivity period. It notes they acknowledge you’re spending money on specific activities in accordance with the exclusivity period and the HOA, and will face loss if they breach this clause.
Courts have upheld this principle. In the 2022 Bugsby Property case, the English Commercial Court awarded £14.98 million in damages after an 18-month exclusivity clause was broken during property negotiations.
Exclusivity clauses with teeth can lead to significant damages even if deals fail to close.
Clause 1 in all my HOAs states: “This agreement is not legally binding unless identified so.”
When I reach my confidentiality and exclusivity clauses, I begin them with “This clause is legally binding.”
This clarifies within the document which clauses are legally binding and which are merely expressions of intent.
Key Insight: Usually, only confidentiality and exclusivity clauses are enforceable. Clearly specify which clauses are legally binding and which are not.
How to Test Genuine Interest
Many people are hesitant to sign an HOA without seeking legal advice.
I handle this by asking the other party for their lawyer’s details so my lawyer can send their lawyer the draft HOA.
This puts pressure on the other party to tell me whether they’re genuine.
Asking for their lawyer’s email address suggests they’ve already spoken to them about the deal. Hopefully, they have. If not, this will prompt them to do so, or they’ll tell me they’re not ready to proceed.
Either way, this gives me what I need.
If they’re not ready, I find out why and address their concerns. I’m in the solutions business. Whatever problem stops them from signing a deal with me, I find a solution for.
Key Insight: Asking for lawyer details gauges genuine interest. If they hesitate, you can uncover the reason and address the real issue.
Why Weekly Meetings Protect Your Deal
I like to schedule a weekly meeting to check on progress.
If we’re required to do more than the other party, I want meetings to show we’re making progress. It keeps them in the loop and allows me to question them to gauge if they’re staying engaged with us.
If there’s no contact, the deal is likely to fall over.
This cadence has two main roles: showing progress when you have more commitments, and acting as an early warning system for deal deterioration.
Research on development agreements confirms that deal failure rates increase exponentially when communication intervals go beyond 10-14 days during due diligence periods.
Key insight: Weekly meetings during HOA periods help keep momentum and serve as an early warning when engagement decreases.
The One Clause You Need
If I could only add one protective clause beyond the standard framework, it would be this:
The parties must continue to act reasonably and in good faith to complete the formal document.
I don’t trust people to keep confidentiality. It’s almost certain that HOA terms will be shared outside the appropriate limits. However, the obligation to act in good faith is different.
If I ever get nervous about someone on the other side, I include this clause.
If they push back, you’ve got all the info you need.
Ask yourself why someone wouldn’t want to be obligated to act in good faith or reasonably. Australian courts have increasingly recognised that acting in good faith includes “an obligation to cooperate in achieving the contractual objects, compliance with honest standards, and compliance with standards of conduct reasonable.”
In the 2019 NSW Court of Appeal case, a principal who issued a show cause notice “with a closed mind and was not interested in the content of the response” was found to have wrongfully repudiated the contract.
Good faith clauses can stop parties from manipulating termination processes.
They’re more than just symbolic gestures.
Key Insight: Good faith clauses require parties to cooperate honestly. Pushback on this clause shows someone planning to act in bad faith.
What Experience Teaches
That warehouse deal taught me a valuable lesson: experience isn’t everything.
The person negotiating the deal was a seasoned veteran with decades more experience than I had at the time. They kept calling the prospect a “grub” who couldn’t be trusted.
In hindsight, this indicated the prospect wasn’t giving clear buying signals. They were, more likely, using our HOA to compare with other opportunities.
When you’re not involved in those conversations directly, you miss important signals.
I advise people to listen carefully to what clients are saying, including what matters to them and why they need what they need. This helps to establish their needs.
I find it hard to explain this to people. I just feel these things.
But you learn to spot the patterns. Someone who asks “what are the next steps” is different from someone who stays vague about their timeline. Someone who makes themselves available is different from someone who’s always too busy to meet.
The HOA doesn’t establish commitment; it records commitment that is already in place.
If you’re pushing for an HOA to create pressure or manufacture urgency, you’re using the wrong approach. You’re setting both parties up for a costly lesson in what occurs when process overrides relationship.
The best HOA I’ve set up was one where both parties were prepared, where needs had been clearly outlined through documented correspondence, where lawyers were already involved, and where the weekly meetings were viewed as helpful rather than burdensome.
That’s not luck. That’s reading the signals correctly and progressing to the HOA stage only when the foundation is solid.
Everything else is just relying on the hope that the engagement ring will somehow lead to the marriage.
Frequently Asked Questions
Is a Heads of Agreement legally binding?
No, not unless specific clauses are explicitly designated as legally binding. Most HOAs are not enforceable except for confidentiality, exclusivity, and good faith clauses when clearly stated as binding.
When should you sign a Heads of Agreement?
Only after you’ve documented agreement on all basic terms through email correspondence and both parties have confirmed they’re ready to involve lawyers should you sign. Signing too early wastes time and damages relationships.
What must be included in a Heads of Agreement?
Every HOA requires four elements: a description of the activity, identification of the parties, definition of obligations, and financial terms. The level of detail varies depending on the deal’s complexity and the needs of the parties.
How long should an HOA exclusivity period last?
This depends on due diligence requirements. Allow sufficient time to meet your obligations without giving the other party too much control. Always connect exclusivity to specific actions and deadlines.
What happens if someone breaches an HOA?
If they breach a non-binding clause, you have no recourse. However, if they breach an enforceable confidentiality or exclusivity clause, you can seek damages. The 2022 Bugsby Property case awarded £14.98 million for a breach of exclusivity.
How do you know if someone is genuinely ready for an HOA?
Look for buying signals: they inquire about next steps, request more information about the process, make themselves available for meetings, and give clear answers about their needs and timeline.
Should you involve lawyers before signing an HOA?
Yes. Request the other party’s lawyer details so your solicitor can send them the draft. This assesses their genuine interest and ensures both sides receive proper legal review.
What’s the most important clause in an HOA?
The good faith clause requires parties to act reasonably and cooperate honestly. If someone resists this, they’re intending to act in bad faith.
Key Takeaways
- An HOA documents existing commitments but doesn’t establish them. If you’re pressing for signatures to create urgency, you’re using the wrong approach.
- Only confidentiality, exclusivity, and good faith clauses are usually enforceable. Clearly state which clauses are legally binding.
- Establish agreement via documented email before engaging an HOA. This provides the basis lawyers require to draft enforceable contracts.
- Watch for buying signals before progressing to HOA stage. Someone asking about the next steps is different from someone remaining vague about the timeline.
- Require weekly meetings during the HOA period. Communication gaps of more than 10-14 days significantly raise the risk of deal failure.
- The good faith clause exposes all. Resistance to reasonable obligations shows someone intends to manipulate the process.
- Test genuine interest by asking for the lawyer’s details. Their response reveals whether they’re serious or still shopping your deal around.
Conflict-of-Interest & Commercial Disclosure: LEFTA Corporation Pty Ltd advises clients across Australia and may seek future joint-venture opportunities at some of the sites discussed. Views expressed are personal and do not represent any current client mandate.
General Advice Disclaimer: This article is based upon the personal experiences of the Author. No portion of this article is intended to provide legal, financial or professional advice. The information contained herein is not a substitute or replacement for the services of qualified professionals, legal, financial and insurance experts. The Author, its publisher, agents, servants, contractors, employees and representatives will, under no circumstances, be liable for any special or consequential damages that result from the use of, or any attempt to use, the information contained herein. You are solely responsible and accountable for any actions, decisions and results by your use of the information contained herein. You agree not to attempt to hold the Author and LEFTA Corporation Pty Ltd liable for any such decisions, actions or results, at any time, under any circumstances.
