When letters of intent go wrong: the advisers’ perspective

Letters of intent can be recommended in specific circumstances:

in view of the perceived importance of achieving early completion and, specifically, early commencement of the works, it was acceptable to advise commencing [the project] under a letter of intent rather than waiting until a formal building contract could be executed.” Ampleforth v T&T

When I am speaking about letters of intent, many of the questions come from advisers (legal or professional) who want to know what to tell their clients. Here are my top tips.

What should you do?

Tip 1: You should read the two cases in the footnote to properly understand letters of intent. Alternatively, read my blogs: using letters of intent, which is better: letter of intent or a contract?, and avoid disputes when using letters of intent.

Tip 2: You need to:

  • understand the risks involved with using a letter of intent [watch my free video series]
  • advise your client when the passage of time means a letter of intent is no longer appropriate [114]
  • advise your client that ‘the longer the works continue under a letter of intent the less incentive the contractor has to sign the contract’ [111]
  • understand that the full contract is not implied into the letter of intent [111]
  • notify your client if you are no longer competent to advise and recommend your client takes professional legal advice [112]

A project is NOT ‘effectively doomed from the moment that the parties agreed…to proceed by way of a letter of intent‘ and that in specific circumstances a letter of intent is ‘a reasonable course to adopt.

Tip 3: You should know when a ‘careful’ letter of intent is appropriate or reasonable. According to Cunningham v Collett, this is when ‘there are good reasons to start work’ before the full contract is signed and these items have been agreed:

  1. The scope of works
  2. The price for those works
  3. The full contract’s terms
  4. The start and finish dates
  5. The contract programme.

If you really want to understand whether a specific letter of intent is good to go, download my Checklist.

2016 Update: A law firm was not held liable for the building delays when it failed to advise it to enter into a full contract as the losses were not caused by the negligent advice. See Harlequin Property (SVG) Ltd v Wilkins Kennedy (a firm) [2016] EWHC 3188

Cases: Ampleforth Abbey Trust v Turner & Townsend Project Management Ltd [2012] EWHC 2137 (TCC) [paragraphs from BAILII report]; Cunningham & Ors v Collett & Farmer [2006] EWHC 1771 (TCC)

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