Under UAE law a heads of terms can be treated as a binding contract if it records agreement on the essential terms and does not clearly make the parties' obligations conditional on a signed final agreement, so the document should state expressly which clauses bind (usually confidentiality, exclusivity, costs and governing law) and that everything else is subject to contract.
Why the document matters
A heads of terms is where most of the economics of a deal are fixed: price, structure, exclusivity, key conditions and timetable. Points agreed at this stage are very hard to reopen in the long-form documents, because the other side will say the deal has already been done. That is why the heads of terms deserves as much care as the contract that follows it, and why it is the right moment to bring in a negotiation lawyer.
Binding or not under UAE law
Under the Civil Transactions Law a contract is formed when an offer and acceptance correspond on the essential elements of the deal. The parties can agree the essential terms and leave details to be settled later. Onshore courts look at the substance of what was agreed and how the parties acted, not just at the title of the document. A detailed letter of intent that covers price, subject matter and the main obligations, signed by both parties and then acted on, carries a real risk of being treated as a concluded agreement even if it is headed non-binding.
The safer course is to state clearly that, apart from listed clauses, the document does not create legal obligations and that no binding agreement will exist until a final contract is signed by both parties, and then to behave consistently with that: do not start performance on the strength of the heads of terms alone.
DIFC and ADGM
The DIFC Contract Law and ADGM's application of English law take a common law approach, under which a clear subject to contract statement is generally respected, although conduct can still create a contract. If the heads of terms are governed by DIFC or ADGM law, draft for that approach, but the same discipline about behaviour applies.
The clauses that should bind
Confidentiality
Protection for the information exchanged during due diligence and negotiation.
Exclusivity
A period during which the seller or partner will not negotiate with anyone else. It should be limited in time, state exactly what is prohibited, and say what happens on breach.
Costs
Who pays for what if the deal does not proceed, including any break fee.
Governing law and disputes
So that the binding clauses can be enforced. See our guide to governing law and dispute resolution clauses.
Good faith in negotiations
The Civil Transactions Law requires contracts to be performed in good faith, and that principle colours how UAE courts view the conduct of parties more generally. Walking away is legitimate; misleading the other side about intentions, or using exclusivity to extract information with no intention of proceeding, is a risk.
Negotiating the heads of terms
Draft first if you can. Cover every point that will move the economics, including the less obvious ones: what conditions must be met, what warranties and indemnities are expected, how price adjustments work, who controls the business between signing and completion, and how either side can leave. Leaving a point to the long-form documents usually means losing it. Our negotiation playbook sets out how we approach this.
Frequently asked questions
Is a letter of intent legally binding in the UAE?
It can be. Under the UAE Civil Transactions Law, a document recording agreement on the essential terms can be treated as a concluded contract, regardless of its title. A letter of intent should state clearly which clauses bind and that the rest is subject to a signed final agreement, and the parties should act consistently with that. Neo Legal drafts heads of terms that list the binding clauses expressly.
Is an MoU binding in Dubai?
The same principles apply to a memorandum of understanding as to a letter of intent: the substance of what is agreed and the parties' conduct decide whether it binds, not the name. Many MoUs used in the UAE contain binding obligations without the parties realising it.
Which clauses in a term sheet are binding?
Typically confidentiality, exclusivity, costs, governing law and dispute resolution. Everything else is usually expressed as subject to contract. The term sheet should list the binding clauses expressly.
This article is general information on the position at the date shown and is not legal advice. The answer for any contract or deal depends on its terms, the parties and the governing law; speak to us before relying on it.
