All About Demand Letters
Understanding the purpose and operation of demand letters is key to an understanding of the legal process. They are often required by contracts – most notably contracts for construction, but also some real estate contracts and perhaps other types as well. The short version: in many cases, actually, in most cases, a demand letter is a prerequisite to filing a lawsuit over breach of contract. The purpose of a demand letter is to put the recipient on notice that a certain act or omission is occurring that violates the contract, and to give that party a chance to remedy the situation before a lawsuit is filed.
For example, your contractor never submitted an application for payment despite completing part of the work. Under some construction contracts, the owner must send a demand letter for payment to the contractor , which obligates the contractor to submit the application for payment within a certain number of days. If he does not do so, the owner may have the right to cure the default of the contractor by either calling the surety (in the case of a payment bond) or by withholding payment to the contractor under the terms of the contract. Either way, if the owner does not send over the demand letter, any subsequent attempt to hold the contractor to the terms of the contract will meet with resistance as the contractor says he never got the demand letter.
This is merely an example and there are many other situations in which a demand letter is either required, or should be sent as a best practice. Any serious legal matter should be handled by an experienced attorney.
Essential Demand Letter Components
Any demand letter should include the following elements:
- A description of the breach. This is where you provide the "who, what, when, where, and how" of the situation. Be as detailed as possible in outlining the fundamental facts. Unlike a complaint, a demand letter does not have to contain allegations. Demand letters tend to be shorter than complaints or motions. The purpose is to briefly and clearly communicate what the dispute is about to the other side.
- Consequences of the breach. After a brief description of the facts, it is imperative to clearly and explicitly explain how the contract was breached. Was a specific good or service not delivered? Was a payment missed? Maybe there was a failure to follow certain guidelines or regulations.
- Expected resolution. Briefly inform the recipient what they need to do to remedy the breach. Formulate a clear demand that will resolve the breach and remedy the situation.
Demand Letter Writing Instructions
Begin the letter by addressing it to whoever it is you are contacting. If that is a customer, begin with their name and address. If that is your counterparty to the contract, begin with their company name, then any relevant attention line, then the company’s address. Be civil and professional, and avoid any expletives or unexpected capitalization. Most computers will spell-check common words, but hardly any use good judgment; read your demand letter for grammatical or typographical issues. If you have been dealing with shift workers, double check that you are sending to the correct address.
Then briefly state what the contract is and its most important portions. If there is significant money owing, it is not a bad idea to attach the contract. Describe the breach; if you do not know what was breached, you will have to get the answer to that question before you can send a demand letter. State what you want the person to do about it. If they will need a copy of the contract to know how to perform, you may as well send it along with the demand letter. Then, briefly mention any relevant communications. What words did the customer say that indicated they were going to fix the problem, and what actions did they take? What representations did the customer make that you relied on? What steps were necessary to perform the contract, when did you do them, and if they were expensive, was the customer aware of the cost?
State when you expect to hear back from them. It’s a common practice to ask that the party respond by the end of the next business day after whenever the demand was received. This gives the other party several hours, assuming normal work hour traffic and lunch times, to consult an attorney if they haven’t already, and to decide what to do. Federal deadlines are measured by hours, so you could give them 48 hours to respond, but be very clear what the impact will be if the time runs. You could also try contact them before the deadline is ended, if you haven’t heard from them, to determine whether the deadline was good enough.
In closing, sign the letter and include your company information—your company name, telephone number, and mailing address.
Demand Letter Example Template
[Your Name]
[Your Street Address]
[City, State ZIP Code]
[Date]
[Recipient Name]
[Recipient Street Address]
[City, State ZIP Code]
Dear [Recipient Name],
I am writing in response to the failure of [Name of the Respondent] to perform their obligations under the parties’ contractual relationship. The action I wish to bring to your attention is as follows. [Clearly and compactly state the objections you have to the other party’s alleged breach of the contract. You should be as brief as possible yet you should aim to clearly and concisely state your grievances across.]
In light of these violations of [Name of the Respondent]’s obligations under the contract , I have retained an attorney to handle this matter on my behalf. At this time, I will be expecting a prompt response to the sent piece of correspondence, which should be no later than [date you expect them to respond, generally 30 days].
Please note that if [Name of the Respondent]’s actions in this matter continue without rectification, then [Name of the Respondent] will be subject to legal action in addition to the litigation costs which [Legal Organization Name] forces me to incur. I am hopeful that proper responsive actions will be taken in order to prevent the necessity of litigating this matter in court.
Thank you for your immediate attention to this matter.
Sincerely,
[Your Name]
Legal Advice and Information
Although sending a demand letter is often a necessary first step toward successful contract litigation, it is not a substitute for engaging legal counsel or accepting an impending adverse filing or answer as an adequate resolution of the dispute. While some jurisdictions have held that formal contractual or statutory requirements may delay or even prevent related litigation, such decisions should be given less than full deference in commercial transactions. Particularly where large sums are at issue and the amount of recovery is indefinite, litigation should be squarely on the table from the outset. However, given the role demand letters play in establishing the terms of the ultimate agreement, tending toward settlement or establishing privilege in communications up to that point, their usefulness as part of a comprehensive strategy should not be overlooked.
Answering a Demand Letter
When an individual or business receives a demand letter alleging breach of contract, there are a number of strategies that can be used to respond to the demand letter. First, consider whether a response is necessary at all. Sometimes when a demand letter is received, it is best to simply wait to see if the sender files a complaint. However, there are other circumstances when the recipient of the letter should respond, especially in cases where the sender has threatened litigation. With a demand letter, especially those alleging that a contract was breached, it is important to consider the possible outcomes, which can range from litigation to an amicable resolution with either a dismissal or some type of settlement. Responding to the demand letter can help to flush out the latter option.
There are several options that the recipient of a demand letter can consider. The recipient can immediately respond to the demand letter and begin negotiation, which can sometimes lead to a quick resolution . In other instances, the recipient may negotiate with the sender and seek to push them into filing suit. This can be beneficial for defendants interested in having the case in court as it can be difficult for defendants to get the case into court if the plaintiff is unwilling to file suit. Also, further negotiation can bring about resolution if a defendant is willing to make concessions to the plaintiff.
In some cases, the recipient might want to consider simply ignoring the demand letter. This approach is most effective if neither side requires anything from the other. It is also useful if the recipient of the demand letter is difficult to deal with as it effectively puts the ball in the sender’s court. Even though ignoring the demand letter can reduce the risk involved in responding to the letter, it also poses risks. In cases where the sender is a limited liability company, a corporation or a government entity, officials may be within their rights to dismiss a lawsuit if the defendant fails to answer the letter in a timely manner.