I have been asked to sign a Memorandum of Understanding (MoU). Is this the same thing as a contract? If not, is it legally binding?

• A Memorandum of Understanding, also referred to as a 'MoU', 'heads of agreement' or a 'term sheet' is usually used to record key terms the parties have negotiated in a proposed relationship with a view to finalising a formal contract later. Whether the memorandum of understanding is legally binding will depend on the wording used in the document.
• For a memorandum of understanding to be legally binding it must be obvious from the wording that the parties intend it to be binding. An introduction or a term in the document may state that the parties intend the document to have legal effect. The terms that are set out must be clear and certain enough to be enforceable. If this is the case the parties will be legally bound by the memorandum of understanding even if a formal contract was not signed later on.
• If the parties have agreed on the terms of their proposed relationship but have stated that performance of the transaction is conditional on signing a formal contract then there may be a binding obligation to enter into a contract.
• Where words like 'non-binding', 'subject to contract' or 'subject to formal contract' are used it is clear that the parties did not intend the memorandum of understanding to be legally binding and a contract will need to be signed.