In part one of our two-part series, we introduced you to LOI basics. In this second part, we will give some brief tips for drafting an LOI. Using an LOI comes with its advantages. For one it gives parties the opportunity to get a start on construction projects when time is of the essence. It also allows subcontracts to begin the design process and to order items with long lead times. Nevertheless, an LOI must be entered into with caution.
As always, a Brandon construction attorney is a great resource for all of your document review and drafting needs. Getting assistance will help you avoid some of the pitfalls that occur with these types of documents.
Tips for Drafting an LOI
Care must be taken when drafting an LOI especially if you want it to be enforceable. The following are just some of the areas that should be noted and covered.
- Determine if the LOI will be legally binding.
- Identify key terms that can be agreed upon within the LOI
- Include a dispute resolution within the LOI
- Include the price and payment method for the products to be delivered and services to be rendered
- Get individuals authorized on behalf of both parties sign the letter of intent
- Draft the letter based on unconditional terms so that future conduct has no effect the LOI
- Complete all negotiations and execute a full and complete agreement immediately
- The detail and scope of the LOI should be equal to the complexity of the transaction
- Apply retrospectively, and that any payments under the LOI will be treated as payments against obligations under the main contract once this comes into force
Like any construction agreement, enforceability can become an issue with LOIs if there is specific language that states that the LOI is not binding until a formal contract is executed. A Brandon construction attorney is a great asset when it comes to executing a properly written LOI with essential terms included.
Negotiating and entering into a contract is always the preferred method of starting a project rather than expending resources on an LOI. Nevertheless, with the increased pressure to commence projects, LOIs are still necessary. Remember, an LOI is not a permanent substitute for a formal contract. Our Brandon construction attorneys advise clients to use of LOIs wisely.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.