The term sheet forms the starting point for documenting the deal between the candidate and the employer. But it needs to be converted into a legally enforceable contract, which ensures, as far as possible, that, whatever happens to the relationship between the candidate and their prospective employer, both sides know exactly where they stand in terms of their financial and other responsibilities.

This chapter discusses the practical and legal issues that can arise when converting a term sheet into a legally enforceable contract.

That contract document, and any associated materials, form part, but not all, of the ‘matrix of facts’ that underpins the contract. It is this broader matrix that will be considered by a court if a disagreement between the two parties escalates into legal action.

Additionally, any contract at main board level also needs to be prepared in the light of investors' expectations. In the UK, the two major representative bodies for the communities of institutional investors, the Association of British Insurers (ABI) and the National Association of Pension Funds (NAPF), have prepared joint guidance on what they expect to see included in, and excluded from, senior executive contracts. This chapter assumes that companies will seek to comply with what are, generally, a sensible set of principles.

Preparing the ground

Where will a draftsman start when converting agreed terms into a contract? Generally, the draftsman will seek comprehensiveness, clarity and concision, in that order.