Term (Sheets) Of Endearment

In my former Biglaw life, an executed term sheet was a thing of a beauty and grace. A safe harbor in a tempest. A bridge over troubled water. A brief respite during which I could sleep a few hours or take care of basic life functions before gearing up to draft a horribly complex set of deal documents.

In my current in-house life, I hate term sheets. Loathe them with a passion reserved for robocalls, line cutters, and people who call out the (incorrect) answers to pub trivia. Look, when it comes to classic movie trivia, unless we’re talking dance, the answer is never Ginger Rogers, okay? Pick a Hepburn to increase your odds.

Unlike lawyers who have been conditioned to appreciate the form and function of term sheets, business partners often fail to grasp the concept. I generally chalk this “misunderstanding” up to the following three characteristics of these tragically misunderstood creatures.

The Temporal Nature of the Term Sheet: Term sheets are like monarch butterflies. Majestic miracles of nature lilting on a summer breeze one moment. Dead in the gutter with one wing torn off the next. Term sheets are not substitutes for definitive agreements. They are not end runs around a full-blown contractual arrangement.  They are not short cuts to get out of doing the legal “mumbo jumbo” language that business partners loathe.

And yet, when you remind a business partner that a term sheet is a temporary solution that paves the way to a final agreement, he will demand to know, “Then why the hell did I spend all that time negotiating that thing?” Or, she will turn selectively amnesiac and insist that, “I didn’t know that one signed piece of paper was different from another” and in any event, “You certainly never told me that up front.” Even though you’ve worked on term sheets with her before. For the last five years.

My personal favorite here is a complete refusal to believe in reality-based constructs and instead take the “but the lying wooden puppet eventually became a real boy” and “the velveteen rabbit became a real bunny after he had scarlet fever or something” approach and just wait it out until the lawyer gives up the chase and the term sheet becomes the de facto deal document.  Admittedly, I currently have a term sheet “in progress” that is 38 months old. It should probably be issued a social security number and afforded the right to vote. Well-played, business partner. Well-played.

The All or Nothing Problem: Another issue with term sheets is that they tend to shine a light on the less-than-savory fact that business people are a bunch of dirty rotten cheats. Term sheets have a nasty way of keeping business partners resentfully honest. They can’t rely on the good old “but I never agreed to that” since it’s right there. In writing. Undisguised by legal mumbo jumbo and laid bare for all to see.

Or, if a business partner isn’t trying to wriggle out of a term sheet in its entirety, he or she wants to pick and choose which terms should actually make it into the final cut. The “I didn’t mean to give them that, I know that’s what I asked for, but that’s not what I meant, can’t we just open up that one issue without opening up the whole document” is business partner code for, “Get a match and we’ll give this sucker a proper Viking funeral.”

No matter how many times you warn them that opening up a term sheet is a poor idea, they never believe you and then are morally outraged when the other party would also like to revisit an issue or two. The nerve of some people.

The Form of Term Sheet: Due to their relative brevity in terms of pages and stripped-down content, term sheets are the most approachable and therefore the most vandalized of all legal documents. My formerly pristine term sheets have been returned to me with scribbles, arrows, skulls and crossbones (once jauntily drawn over a minimum order quantities section), takeout orders, and so many unidentifiable smudges and stains that it makes you rethink your stance on drinking hand sanitizer to build up an immunity to a document that’s now practically sentient.

That doesn’t take into consideration the form of what I will loosely deem term sheets that I routinely receive from my business partners that they have “drafted” themselves. These have included  (i) a 38-word affair signed by both parties on the back of a La Perla receipt, (ii) a writing memorialized on an airline sickness bag (which while unused, was likely covered in antibiotic resistant super bugs), (iii) an oral term sheet shouted over voicemail with both parties spelling out their first and last names to indicate their agreement and acknowledgment, (iv) a screen shot of a Snapchat conversation, and my own personal horror, (v) an excel spreadsheet with a bunch of broken cells where I think the agreement on the commercials had once been formulas. I am, of course, a dirty rotten cheat myself, dear reader. For one of these examples above is completely fictitious. The other four are not. Let that sink in.

In closing, here are some tried and true practice tips for using term sheets.  Don’t. Use. Them. If you encounter one, kill it with flame and bury it on consecrated ground.

But, if this fails and you must proceed, be honest and upfront with your business partner about what term sheets can do for them and what they can’t. Then, when they give you that glazed over “I’m not listening to you” look, go for their soft underbelly: appeal to their sense of pride. Term sheets are for posers who can’t close a real deal and nobody wants to be a middle reliever. Closers get the job done and that means sucking it up and seeing the deal through to its true end.

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Kay Thrace (not her real name) is a harried in-house counsel at a well-known company that everyone loves to hate. When not scuffing dirt on the sacrosanct line between business and the law, Kay enjoys pub trivia domination and eradicating incorrect usage of the Oxford comma. You can contact her by email at [email protected] or follow her on Twitter @KayThrace.