Rogers and Norton Construction Team advise UK Company on Letters of Intent
Our team recently advised and drafted a Letter of Intent for a client for a large construction project. The Letter of Intent was needed within a matter of hours and was completed to our client’s satisfaction.
During construction projects, a number of technical and practical elements must be considered and included in a formal construction contract. However, due to commercial pressures, there is a tendency to begin works before contract negotiations have completed and the contract has been signed. Where this occurs, many choose to draft and rely upon what is known as a Letter of Intent.
What is a Letter of Intent?
The term ‘Letter of Intent’ is typically used to describe a letter which indicates that there is an intention between parties (either an employer and contractor or a contractor and sub-contractor) to enter into a contract to carry out the works as described in the letter.
The use of a Letter of Intent can provide some comfort to the parties, ensuring a contractor receives payment for work carried out before the contract is concluded and potentially reduces borrowing costs for the employer.
“Letters of Comfort” are types of Letters of Intent but are generally not considered legally binding. Non-binding letters provide uncertainty of the fundamentals of the work and risk to both parties. Therefore it is important to consider the content and form of a Letter of Intent carefully to ensure it has legal effect.
What makes a Letter of Intent legally binding?
The Letter of Intent, to be legally binding, must have the basic features of a contract. The letter must clearly record the agreement of both parties, and the consideration received i.e. the amount the employer will pay to the contractor for the works. It must be clear that it is the intent of the parties to enter into a contractually binding agreement.
The terms of the letter must address some of the key issues in respect of the works. Some of these include:
- Access to the site;
- The scope of the works, as well as provisions relating to the quality of the materials and that the works are to be undertaken within a reasonable time period;
- Insurances to be put in place;
- Payment provisions – will there be any cap on payment under the Letter of Intent?;
- How a dispute shall be resolved, should one arise.
The importance of determining the parties’ intentions and drafting a legally binding Letter of Intent is highlighted by the fact that the Courts have dealt with a number of cases where the parties’ contractual positions were not as they had intended.
Practical Tip
A Letter of Intent should not replace putting a formal contract in place and a contract should be put in place as soon as reasonably practicable.
The construction team are able to advise on the use of Letters of Intent as well as advising on and draft construction contracts. Please contact us at [link]
*This article is provided for general information purposes only and does not constitute legal or any other professional advice.