The City of London Law Society Standard Form of Letter of Intent combines four distinct categories:
- a record of the current state of negotiations on the intended ‘full’ contract
- a fall-back position if the full contract is never signed
- financial limits on the payer’s liability, and
- a simple contract for initial works.
What do you really need for a letter of intent on a construction project? This post sets out the graveyard ie those clauses your LoI DOESN’T need.
Missing the point
Any statement in a contract (including a letter of intent) is only valid on the day it is agreed. So statements about whether the client intends to award the full contract, or recording the current state of negotiations on the full contract, aren’t effective to legally confirm that ‘we both promise we won’t change our minds.’
Recording the current state of negotiations does not fix those terms. It’s a form of marker in the sand, and the next tide of emails can wash it away. Category 1 content is not needed.
Once the letter of intent is agreed between the parties, then there are two options for what might happen next: A) you get the full contract signed or B) you don’t.
If the full contract is signed (option A), then it will be worded to encompass all of the goods, works or services provided under the letter of intent. It will:
- state that it is to be retrospective,
- include the scope of the initial works in the scope of the works under the full contract, and
- include the sums paid in the price under the full contract.
If the full contract is never signed (option B), then your letter of intent needs to work without it. So it should be a complete simple contract for the initial works. Category 2 content is not needed, because category 4 covers it.
If you still think its necessary to refer to the full contract to adopt its procedures etc, think again – this post explains why this is another letter of intent myth.
If you want the full contract, sign the full contract.
Limiting sums due
Do you need it? No. Is it effective? Generally, no.
Limits do not incentivise the provider as it will generally get paid for works it carries out for the benefit of the payer. It does not limit the amount that will have to be paid.
Category 3 content is not needed. Worse, it gives the payer a false sense of security… when what both parties really need is to get on with negotiating and signing the full contract.
What should you do?
Your letter of intent should record the basics required to instruct the provider to provide initial goods, works or services. And it should do so accurately, briefly and clearly.
If speed is so important that you need a letter of intent, there should be no time to throw in pointless clauses… like you were filling a kitchen sink!
This post expands on Chapters 8 and 20 in How to Write Simple and Effective Letter of Intent in Just 500 Words, available from Amazon in paperback and kindle.
