Why Every Settlement Needs a Strong Term Sheet

One of the most satisfying moments in mediation is when the parties finally reach an agreement. After hours of negotiation, difficult conversations, and careful compromise, there is often a collective sense of relief.

But while the negotiation may be over, protecting the settlement has only just begun. 

The Strategy

Ideally, the parties would immediately draft and execute a comprehensive settlement agreement before leaving the mediation. In reality, however, complex settlements often require additional drafting. Whether the agreement involves business transactions, intellectual property, structured payments, or other detailed provisions, a formal settlement agreement may not be practical to complete that day.

That's where the term sheet becomes critical.

A well-drafted term sheet is much more than a placeholder. It is the foundation for a durable settlement and, if necessary, may become the document a court relies upon to enforce the parties' agreement. Spending a few extra minutes getting it right can prevent months—or even years—of additional litigation.

#1: Have the Clients Sign the Term Sheet

Although attorneys often have authority to bind their clients to a settlement, relying solely on counsel's signature can create unnecessary risk. A client may later challenge whether authority existed, potentially leading to an entirely new dispute over enforceability.

The best practice is straightforward: have each client personally sign the term sheet before leaving the mediation.

💡 Practice Tip: Before everyone leaves the mediation, confirm that every party—not just counsel—has signed the term sheet.

#2: Define the Material Terms—Don't Leave Them for Later

One of the most common mistakes is using general language such as "the parties will exchange mutual releases" without explaining what that actually means.

Instead, the term sheet should clearly identify:

• Who is being released;

• Whether affiliates, insurers, employees, officers, family members, or related entities are included;

• Whether the release is broad or limited to the claims in the litigation; and

• Any confidentiality, non-disparagement, indemnity, or dismissal provisions that are material to the settlement.

If these issues are important enough to negotiate, they are important enough to include in the term sheet.

💡 Practice Tip: If a term is important to reaching the settlement, don't assume it can be worked out later. Include it in the term sheet.

#3: Make the Term Sheet Enforceable on Its Own

The parties may intend to prepare a more detailed settlement agreement after mediation, but sometimes that document is never completed.

To avoid future disputes, the term sheet should:

• State that it is immediately binding and independently enforceable;

• Include all material terms with sufficient specificity;

• Set a short deadline—ideally seven days—for completing the formal settlement agreement; and

• Designate a process for resolving drafting disputes, including a return to mediation clause.

A strong term sheet should stand on its own, even if no additional agreement is ever signed.

💡 Practice Tip: Draft the term sheet as though it may become the final settlement agreement—because sometimes it does.

#4: Address Future Disputes Before They Arise

Ironically, parties often settle one dispute without deciding how disagreements about the settlement itself will be resolved.

If the underlying matter involved arbitration, the parties should determine whether future disputes concerning the settlement will also proceed through arbitration, mediation, or litigation. Including a clear dispute resolution provision eliminates uncertainty and can save significant time and expense.

💡 Practice Tip: Every settlement agreement should include a roadmap for resolving future disputes about the settlement itself.

#5: Don't Overlook Payment Security

Not every settlement is paid immediately. When payments will be made over time, the term sheet should specify what happens if the payor defaults.

Depending on the circumstances, appropriate protections may include:

• Acceleration of the remaining balance;

• A confession of judgment where permitted;

• Personal guarantees;

• Escrowed assets; or

• Other agreed security.

These provisions often receive little attention during negotiations, yet they may become some of the most important terms in the entire agreement.

💡 Practice Tip: Hope for timely payment—but draft for the possibility of default.

The Path Forward

A successful mediation deserves more than a handshake. It deserves a settlement that provides certainty, withstands challenge, and truly brings the dispute to a close.

A carefully drafted term sheet is one of the simplest—and most effective—ways to protect the hard work accomplished during mediation. By taking the time to document the parties' agreement thoughtfully and completely, you greatly increase the likelihood that the settlement will endure long after everyone leaves the conference room.