Term sheet

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In Anglo-Saxon contractual practice, a term sheet is understood to be a discussion and working paper that contains the key points of the contractual components negotiated between the contracting parties and forms a binding basis for the formulation of the subsequent contract .

General

German contractual practice has taken over the term sheet and its functions from the Anglo-Saxon legal system without a generally recognized translation of this Anglicism or a description of its degree of binding force. There is therefore no legal definition . Since it is problematic to simply adopt international customs, the degree of its binding nature should be clarified in the term sheet. This fluctuates between a mere declaration of intent (“soft” letter of intent) and a legally binding preliminary contract . A term sheet will seldom be completely non-binding, however, because the confidentiality and exclusivity clauses often contained therein are subject to an at least one-sided obligation to fulfill .

Areas of use

A term sheet is always required when it comes to complex contracts, controversial contractual clauses or lengthy negotiations. It then circulates between the contracting parties and their legal representatives, is updated according to the respective status of negotiations and is usually signed by the contracting parties. The final version leads to a contract to be concluded or is declared as a contract by the contracting parties. The term sheet is used in particular for complex company acquisitions and venture capital transactions; it is most common in banking for syndications and credit derivatives . Everyday venture capital financing practice shows that the term sheet, participation agreement and shareholder agreement are brought into the negotiations and discussed, modified and revised in the course of lengthy negotiations. In a term sheet, mere framework conditions can also be defined, which later flow into a contractual agreement. The validity of extensive typical contractual clauses (in particular choice of law , confidentiality and exclusivity clauses , cross-default clause ) is only agreed here in brief; their formulation is left to the "first draft" of the contract. The term sheet contains detailed information on the individual features and the controversial parts of the planned transaction (“terms and conditions”). The information contained in the term sheet does not need to be conclusive, but is decisive as a basis for the subsequent contract documentation.

Legal consequences

The binding nature of the term sheet depends on the will of the contracting parties. If it is supposed to be a mere declaration of intent, this is clarified by a clause such as “This term sheet is intended for discussion purposes only, it does not constitute an offer or an obligation of any kind”. However, if its content is to be of a mandatory nature, this must be specified in the term sheet. Despite the largely non-binding nature, it is customary in practice to adhere to the provisions of a jointly developed term sheet and not deviate from them for no reason or significantly during further cooperation. The agreements on the confidentiality of the cooperation and the information exchanged ( Non-Disclosure Agreement ) and the exclusivity of the negotiations are binding .

The term sheet is often drawn up without the involvement of lawyers, whereby clauses or procedures are agreed on the basis of foreign legal application which, under German law, cannot be implemented or not implemented in the intended form.

  • English terms are used whose content and legal consequences under German law the parties have wrong or different ideas about;
  • regulations are overlooked or forgotten that are necessary or appear sensible for the implementation of the will;
  • there are incorrect ideas about the legal nature and binding nature of a term sheet.

For this reason, the application of choice of law clauses is essential for term sheets with international contact. If there is a legal dispute about the content and degree of binding nature of a term sheet, German courts are obliged to interpret the content of the declaration based on the rules of interpretation ( § 133 and § 157 BGB). It has to be determined whether only a declaration of intent was given or a commitment was intended. According to the interpretation rule of § 154 Paragraph 1 Clause 2 BGB ( punctuation ), in case of doubt it must be assumed that a contract has not been concluded as long as the parties have not agreed on all points of the contract, which, according to the declaration, only one party Agreement should be made. This applies to the recording of individual points of a contract on which there is an agreement . In any case, there is no binding effect until an agreement has been reached on the entire contract.

According to the general opinion, a term sheet creates a pre-contractual obligation according to Section 241 (2), Section 311 of the German Civil Code , even if it does not result in any obligation to conclude a contract . The duties of conduct include, in particular, promoting the conclusion of a contract, protecting the contractual partner from damage resulting from the negotiation and providing him with correct and complete information about the circumstances that are recognizably important for his decision-making. If these obligations are violated, liability arises from pre-contractual negligence according to Section 311 (2) No. 2, Section 280 (1) BGB (“ culpa in contrahendo ”), in particular if the negotiations are broken off for no reason.

Use

A correctly used and legally secure term sheet offers those involved a certain degree of transaction security before further costs arise for the detailed due diligence and the final contract negotiation and documentation. It reflects the current negotiation status and thus serves as evidence even for previously controversial negotiating positions. A term sheet guides contract negotiations in tightly defined paths and determines the current state of negotiations, usually irrevocably. Because the "First Draft" must not deviate significantly from the key points of the term sheet. It legally indicates that it still needs to be implemented in a binding contract that has yet to be concluded.

Individual evidence

  1. ↑ Tom Sommerlatte: Handbuch der Mittelstandsberatung , 2008, p. 281 f.
  2. ↑ Christian Brehm: Das Venture Capital -vertragwerk , 2012, p. 47.
  3. ↑ Emanuel Ballo: The general terms and conditions control of credit agreements ... , 2010, p. 27.
  4. ^ Carsten Grau / Karsten Markwardt: International Contracts , 2011, p. 82.
  5. ↑ BGH, judgment of June 8, 1978, Az. III ZR 48/76, full text = NJW 1978, 1802.
  6. ^ Christian Brehm: Das Venture Capital -vertragwerk , 2012, p. 23.
  7. ↑ Armin Huttner: Legal Handbook for Real Estate Practice , 2011, p. 263 f.

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