The UK’s first model letter of intent has been updated – has the wait been worth it?
Despite attracting a certain wariness amongst some in the development sector, letters of intent are in broad use. Construction projects involve moving parts which can be complex and, notoriously, subject to delay.
However, experienced parties know that, while particular hurdles are tackled, other aspects can progress. For example, even if the commencement of the works is held up by the client and contractor hammering out the last dregs of the contract price, that need not prevent site preparation works being undertaken in the meantime. Moreover, key components, such as lifts, must be ordered and manufactured in good time to avoid causing delays further on.
A letter of intent permits these construction activities to be carried out and paid for while the parties continue to conclude the building contract. Where things can go awry with the letters (hence that wariness) is when clients fail to recognise the strengths and shortcomings of the arrangement. A common anxiety is that having signed a letter of intent, the parties may complete the whole development without agreeing any further written agreement. It should never be forgotten that a letter of intent should only be a short-lived contract with limited scope and exposure. It does not obviate the necessity of a building contract for substantial works.
Inevitably, letters of intent are often agreed at the last minute to prevent completion date slippages and keep programmes on track. This is fertile ground for a standard form instrument where a familiarity with its terms means the parties won’t need to waste valuable time reviewing all the terms afresh. In that vein, the City of London Law Society (CLLS) published the first standard form letter of intent in 2007. That was very well-received. The document has now been updated as a 2024 edition.
Aside from the small refinements expected from any revision, the most visible change is structural. The previous version operated akin to a precedent, with blank spaces within clauses and provisions that were to be deleted if not applicable. However, that meant users had to edit existing text, occasionally renumber paragraphs and complete particular sentences – not entirely seamless for a model form. These elements are now dealt with in a new annex, titled the Particulars. This also constitutes an orderly means to convey details that will vary project by project, such as insurances.
New health and safety requirements and building regulations in England are reflected, as well as a tightening of confidentiality obligations relating to publicity and media. Measures are required to remind the parties that the letter is only an interim solution. Those carried over from the earlier edition include an expiry date for when the contractor must cease work, a maximum expenditure cap and allowing the employer to terminate for convenience. Entry into the letter does not guarantee that the contractor will be awarded any subsequent building contract.
Nonetheless, there are also more specific elements discussed in the CLLS’ helpful accompanying guidance which are not covered in the drafting. For example, since only a proportion of new construction projects involve higher-risk residential buildings under the Building Safety Act, it made sense for this to be addressed through carefully designed bespoke amendments than to distend the document. This is an approach the JCT 2024 suite is adopting, for instance, but does mean that specialist advice will be needed in such situations. It is a consequence of its authors having to balance functionality against ease of use.
Additionally, the guidance acknowledges that the form can be adapted for projects outside of England with proper expertise. That is a truism. The form was not written with such an intention but, in the absence of a similar standard form elsewhere, there will be a temptation for some legal practitioners to do so.
The 2024 update does not seek to amend that which is not broken but, with its modernising and proportionate approach, the CLLS should see that its form remains significant for many more years.
The letter of intent can be downloaded from the City of London Law Society at this link.
A version of this article first appeared in Property Week.
