Is a letter of intent legally binding?
Often, yes: a letter of intent that asks you to start work and says how you will be paid is usually a contract.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
The answer
It binds both sides to what it says: the work it covers, the cap, the rates and the date it ends. It does not bind either side to sign the full subcontract later. A letter that only says your main contractor intends to place an order, without asking you to start, usually binds nobody. The cap is the part that catches subcontractors out. A clearly worded cap can limit what you recover, even if the work carried on past it. So read the letter as closely as a subcontract before you start. Check the scope, the cap against your first weeks' spend, the price basis, the expiry and the payment dates. Ask in writing for anything missing, and keep the reply. Whether your letter is a contract, and on what terms, is a question for your solicitor. Once work has gone past the cap or the expiry, its value still needs proving, whatever the legal answer.
Example
Illustrative example. The scenario and figures are invented.
The facts
A drylining subcontractor is sent a letter of intent for the first floor of a £380,000 package. It asks the subcontractor to start at its quoted rates, caps payment at £50,000 and ends in 6 weeks.
What happens
- The subcontractor reads the letter as a contract for the first floor, so the rates, the cap and the 6 weeks bind both sides.
- Its plan for the first month commits £64,000, over the cap. It asks in writing for a £100,000 cap before it starts.
- The main contractor raises the cap to £100,000 and confirms the rates in writing.
- The subcontractor puts the new cap in its cost system with a warning at £75,000, and the expiry in its diary.
The outcome
Every pound spent in the first month is inside a written cap, at rates both sides have agreed in writing.
Before you start, our Letter of Intent Loss Prevention service checks what the letter binds you to. Once the work has gone past its cap or expiry, our Letter of Intent Claim service values it and pursues the balance.