A letter of intent in construction allows the parties to commence work on a project before they have entered into a legally binding contract. Letters of intent offer a useful short-term solution to businesses that need to get a project moving swiftly, but  they are fraught with risks that are often underestimated or overlooked.

At Altion Law, our expert construction solicitors specialise in advising employers, contractors, and consultants in connection with disputes arising from letters of intent in construction. As a firm, we are known for our commercial outlook, and take pride in providing practical, business-oriented advice in a language that our clients understand to help them achieve their goals.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.

 

What is a letter of intent in Construction?

A letter of intent in construction is a document used by the parties to a project to indicate their intention to work together and enter into a formal contract at a later date. Letters of intent are used when the parties want to start work but have not had a chance to finalise their formal contractual arrangements. They enable the parties to get the project off the ground while their legal advisors continue to negotiate complex contractual terms, and provide those involved with a degree of reassurance that the other is committed to the project.

 

What are the issues with letters of intent in Construction?

  • Uncertainty over their legal status.

Perhaps the most significant drawback of letters of intent in construction is the uncertainty over their legal status. Some letters of intent are intended by the parties to be legally binding; others are not. Sometimes, the parties give no thought to the legal status of their letter of intent in construction.

The legal status of letters of intent in construction is a frequent cause of litigation. In some cases, the Courts have held that letters of intent intended to be non-binding by the parties are, in fact, legally enforceable as a result of the parties’ conduct. Conversely, letters of intention that the parties had intended to be binding might be unenforceable due to being too vague.

Disputes about whether the letter of intent constitutes a binding legal contract and, if so, what its terms are, can be hard fought and lengthy, and expert legal advice is essential.

 

  • Delays to the final contract.

 Letters of intent in construction are not full contracts. They are, by definition, a statement of intent to enter into a full agreement in due course. They are an interim measure to facilitate the commencement of a project pending the conclusion of the final contract, and it is important that the parties treat them as such.

Issues can arise when the parties lose the impetus to get the formal documentation in place, opting instead to continue working without the clarity and protection afforded by a properly drafted agreement. Then, if a problem does arise, the parties can find themselves embroiled in a dispute over the legal status of their letter of intent and their rights and responsibilities in connection with the project. Disputes of this nature can be extremely complex, since the parties must rely on correspondence, oral assurances, and conduct to prove their case.

 

  • Lack of comprehensive contractual protection.

Letters of intent in construction are typically far less detailed than full contracts. If they were not, there would be no need for the parties to use one since, it would be just as quick to proceed straight to the final agreement.

Letters of intent in construction often do not include robust terms dealing with crucial issues, such as termination of the parties’ relationship, payment mechanisms, valuation procedures, extensions of time, and dispute resolution. As a result, if a dispute or an unexpected event occurs, the parties have no framework for addressing it and may find that they do not enjoy the legal protection they had anticipated.  For example, employers may struggle to enforce quality standards, and contractors may face an uphill struggle to recover the money they are owed.

You can mitigate this issue by ensuring that you do not lose sight of the fact that your letter of intent is a temporary stopgap between the commencement of work and the contract being finalised. Your letter of intent is not a substitute for your final contract, and it is essential that you continue working with your legal team to finalise the contractual documentation as soon as possible.

 

Summary

Letters of intent play a crucial role in construction projects, allowing the parties to get to work without needing to wait for the final contract to be concluded. However, they are not without their drawbacks, particularly if the parties become complacent and do not finalise the contractual documentation swiftly.

Many of the issues inherent in letters of intent in construction can be mitigated by seeking advice from construction solicitors like ours before entering into one. If a problem does arise before you have had a chance to finalise your full contract, our construction team is ideally placed to advise you and protect your commercial interests and the project.

 

For a confidential free discussion, call us today on 01908 414990,  alternatively email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.