Letters of Intent

Question 1

What are the 3 types of letters of intent?

Answer 1

• Comfort Letters
• Consent to Spend
• Recognition of Existing Contract

Question 2

What is a letter of Intent?

Answer 2

It’s a generic term for documents that are used to enable works to commence before a formal/primary building contract has been executed.

Question 3

Are letters of intent legally binding?

Answer 3

They can be, but it depends on the wording

seek legal advice

Question 4

When would a letter of intent be used?

Answer 4

Where an employer needs to begin works before a certain date, but the final contract is still in negotiation.

Question 5

What should be stated in a legally binding letter of intent?

Answer 5

• The parties – the names and titles of the parties as stated within the contract documents
• The works – described in clear and concise terms
• The price (if agreed) – clearly stating the currency and whether this price is to be considered a maximum expenditure limit until the formal execution of the contract
• A statement of the intention of the parties to enter into and be bound by a formal contract
• The dates for possession and completion and whether there is any sectional completion envisaged or required within the contract
• Entitlements of both parties upon the revocation, frustration or repudiation of the contract
• Contract Procedure for payments, termination and disputes
• Insurances that are to be provided
• The maximum expenditure limit allowed under the letter of intent
• Confirmation that the contract created by the letter of intent will terminate upon execution of the principal contract(s)

Question 6

What are the advantages of a letter of intent?

Answer 6

• Speed up programme
• Show commitment from the employer
• Provide safeguards for the contractor

Question 7

What are the disadvantages of a letter of intent?

Answer 7

• May become legally binding unintentionally
• May reduce negotiation power or flexibility
• May create false expectations or confusion for stakeholders
• Could act as disincentive to excecute formal contract
• Less robust than the main contract

Question 8

What should you consider when prepareing a letter of intent as a QS?

Answer 8

It is outside of the scope of a QS to prepare a letter of intent, the clients construction lawyers should prepare them.

Question 9

Who writes a letter of intent?

Answer 9

The clients construction lawyers.

Question 10

Is there any relevant case law about letters of intent?

Answer 10

Ampleforth vs T&T PM: Letter of intent was used in leiu of contract as the contract was never signed. Contractor was late but was less liable than they would have been if full contract was signed.