In essence, a term sheet should cover the most important aspects of an agreement without going into any minor details and contingency covered by a binding contract.

It essentially sets out the groundwork for ensuring that the parties involved in a business transaction agree on most important aspects of the deal, thus precluding the possibility of misunderstanding and diminishing the likelihood of unnecessary litigation. It also ensures that there is no premature incurrence of expensive legal charges involved in drawing up a binding agreement or contract.

All term sheets should include certain basic elements, such as information on the identity of the parties involved, valuation, and preferred payments. It also includes information on all the properties involved, the initial purchase price, including contingencies that may impact that price, a response time period, and any other information that is considered relevant.