Are they legally binding?
Letters of intent or heads of agreement will generally speaking not be legally binding on the parties. There is no rule of French law specifically regulating pre-contractual documentation. Such communications are known under various names in France such as lettre d’intention, protocole d’accord or lettre de confort.
However, if the letter of intent sets out in detail the principal terms of the transaction, a court, in case of dispute, may consider that the letter of intent constitutes a binding agreement, having regard to the purpose of the transaction itself. Even wording in the headings, such as “subject to contract”, may be mitigated by the text of the document itself. It is therefore very important to draft such documents with great care, and set out issues that the parties consider to be essential to the contract and on which no agreement has been reached.
Where heads of agreement contain confidentiality and/or exclusivity clauses, it is usual to state that only these particular clauses are binding.
Are any specific terms/formalities required to make them legally binding?
In order to be binding, the heads of agreement should contain as much detail as possible concerning the transaction and clearly state that the parties commit to enter into a contract. If the heads of agreement appear to be a definitive contract with specific, clear and autonomous obligations that have been duly accepted in the proper form, then it may again constitute a legally binding agreement between the parties, regardless of whether the intention to contract is expressly stated.
What are the consequences of breach?
As for any breach of contract, in the event that a party breaches the terms of a legally binding heads of agreement, the other party may be entitled to damages. If the heads of agreement are not found to be legally binding, then a breach would have, from a legal point of view, no consequences.
Can heads of agreement have any tax implications/adverse consequences?