Are Letters of Intent Binding in Australia? | Awelle

Businesses often sign a letter of intent, term sheet, or heads of agreement before the “real” contract. Whether these documents bind you depends on what they say…

Lisa Muscatello's avatar

Lisa Muscatello

By the Awelle Legal Team — practising Australian lawyers.

Businesses often sign a letter of intent, term sheet, or heads of agreement before the “real” contract. Whether these documents bind you depends on what they say — not what you call them.

Key Facts

• The framework comes from the High Court of Australia’s decision in Masters v Cameron (1954), which is still the starting point courts use to decide whether a pre-contract document binds the parties.
• Unclear commercial arrangements feed real disputes: payment disputes alone make up around 40% of the disputes the Australian Small Business and Family Enterprise Ombudsman assists with ( ASBFEO).

When is a heads of agreement binding?

• Immediately bound — the deal is done; the formal contract just restates it.
• Bound, but performance awaits the formal document — you can’t walk away.
• Not bound until the formal contract is signed — either side can withdraw.
• Bound to some terms now (e.g. exclusivity, confidentiality) with the rest to be negotiated.

Frequently asked questions

Is a letter of intent legally binding in Australia?

It can be. The name doesn’t decide it — the language, completeness of terms, and the parties’ conduct do. Courts apply the categories from Masters v Cameron to work out what the parties intended.

What does “subject to contract” actually mean?

It signals that neither party intends to be bound until a formal contract is signed. It’s strong evidence against a binding deal — but conduct like starting work can still undermine it.

Should a heads of agreement be signed?

Yes, if you use one — and it should state expressly which clauses are binding (typically confidentiality and exclusivity) and which are not (typically price and scope still under negotiation).

Can I walk away after signing a term sheet?

It depends on which category the document falls into. If it’s genuinely “subject to contract” and no binding clauses were breached, usually yes. If essential terms were settled and the language is contractual, walking away can be a breach.

What’s the difference between a letter of intent and a heads of agreement?

Very little in law — both are pre-contract documents recording a deal in principle. What matters is the drafting: which terms bind, which don’t, and whether a formal contract is a condition of being bound.

This article is general information, not legal advice. Awelle can draft heads of agreement with clearly separated binding and non-binding terms.