Contractual terms- Letters of Intent & Implied Terms

Some thoughts regarding contractual terms:

Letters of intent

When trying to conclude a commercial deal it is tempting for the parties to use a ‘letter of intent’ to cover the points on which they cannot agree. A letter of intent is a temporary binding or non-binding agreement before formal negotiations are concluded. Typically letters of intent are used in building contracts.

In a recent case, the Court of Appeal found that by commencing work based on what appeared to be a letter of intent, the parties had entered into a contract. The factual history in this matter went back 15 years or so!

Given the consequences which may only come to head many years later, contracting parties should think very carefully about whether to use a letter of intent at all and if it is necessary terms should be concluded. It is very tempting where a letter of intent is used to allow time to pass and for the parties never to reach the final contract point.

Implied terms

In another case, the Supreme Court has confirmed that in an appropriate case it would have ‘no hesitation’ in implying a term to give business efficacy to the agreement had it proved necessary to do so. This is very fact specific and the context is critical so it should not be seen as an open door to radical amendments.

The best thing is always to ask us to help with the preparations of contractual terms at the earliest stage as possible. If you would like to book an appointment with any member of our Corporate Commercial team please call: 01256 32055 or email: mail@clarkeandson.co.uk.

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