FAQs

The following FAQs are addressed below:

• Are letters of intent safe to use?
• Do letters of intent create a binding contract?
• Do letters of intent serve the employer or the contractor?
• Should letters of intent be drafted by a lawyer?
• What happens if the letter of intent contains a cap on entitlement which is exceeded?

Are letters of intent safe to use?

Letters of intent are a safe and useful tool if used appropriately and with care. Unfortunately they are very often prepared without sufficient care. Pressure is then taken off completion of the formal contracts which are all too often signed much later than they need to have been. In the meantime risks and uncertainty may have been much higher than expected.

Do letters of intent create a binding contract?

Whether or not letters of intent create a binding contract and the terms of the contract that they create very much depends on terms of the letter which must therefore be very carefully drafted.

It is better not to use letters of intent at all but to enter into contract before works commence. However if this is not possible then the formal contracts should be completed as soon as possible.

Do letters of intent serve the employer or the contractor?

Letters of intent serve both parties by allowing works to commence before contract documents have been prepared, checked and signed. However, badly drafted letters of intent can also introduce a great deal of uncertainty or misunderstanding as to the parties' respective rights and obligations and this serves neither party.

Should letters of intent be drafted by a lawyer?

Yes. There are many examples of expensive and time consuming court battles regarding the interpretation of letters of intent. If they are to be used they should be drafted by lawyers and replaced by formal contracts as soon as possible.

What happens if the letter of intent contains a cap on entitlement which is exceeded?

If there is evidence that the party now relying on the cap had at all times preserved its intention to do so then the cap will usually apply. However if the party now relying on the cap can be shown to have waived its intention to do so then the cap will usually no longer apply.