The first step to entering a contract
The main purpose of a Letter of Intent (sometimes also referred to as a “Letter of Understanding” or “Memorandum of Understanding”) is to facilitate the start of a business deal or project between the parties involved by identifying the key business and contractual understandings that will form the basis of the final contract.
The term ‘letter of intent’ does not have a technical legal meaning and is used for a variety of contracts. It is typically used to describe a letter from an employer to a contractor (or from a main contractor to a subcontractor) indicating the employer’s intention to enter into a formal written contract for the works described in the letter, and asking the contractor to begin those works before the formal contract is executed.
Typically an Letter of Intent will operate in one of three ways:
1. As a non-binding statement of the future intention of both parties.
2. As an interim contract on its own terms, which will govern the relationship between the parties unless and until a formal written contract is executed.
3. As a final contract which, despite there having been no formal execution, is deemed to have incorporated the terms and conditions of the formal written contract that the parties intended.
Checklist when completing our Letter of Intent to Contract
Note: All of the relevant provisions have been included.
- Clearly identify the scope of the works or service to be performed
- Set out any matters to be resolved before the main contract can be entered into
- We have included a disclaimer so that the Letter of Intent is intended to give rise only to an interim agreement pending the negotiation of the main contract, and that neither party intends to be bound by the main contract until the written document is executed by each of them. However, it is possible for the parties to inadvertently waive such provisions if their behaviour contradicts this.
- State what governing law applies.
- A provision has been included making it clear that once the intended contract is concluded it will apply retrospectively, and that any payments under the LOI will be treated as payments against obligations under the main contract once this comes into force.
- DO NOT see an Letter of Intent as a substitute for a properly-drafted contract.
- Don’t include all the terms and conditions you wish to be included in the final contract, these are drafted later.
- Don’t forget to send a copy to the other party for signature and return.
- Don’t forget to formalise the contractual relationship before the Letter of Intent expires.
Do you intend to enter into a Contract and want to officially commence negotiations and get the ball rolling?
Download out Letter of Intent to Enter a Contract Now.