Letters of intent are often exchanged during contractual negotiations. They are often the cause of legal disputes and in a court case in such a dispute the judge made recommedations about their use.
The recommendations are that any letter should:
• state clearly whether it is intended to be binding or non-binding;
• state what the rights of the respective parties are in the event that a formal agreement is not subsequently reached. In particular, care should be taken to ensure that the method of dealing with any dispute and the effects of termination are clearly set out;
• set out whether it is intended to constitute a contract under the Construction Act (and if it is not so intended, care should be taken that the wording does not unintentionally create such a contract); and
• set out any financial, time or other limits which apply to the work done by the contractor under the letter of intent.