Letter of intent?
Discussion
I have been asked to advise on a situation by a client regarding the validity of letter of intent they sent to an architect. I'm not a legal person so this isn't really my place but I thought I'd ask here if anyone has come across a similar situation.
The letter congratulated the architect on the appointment and confirmed the fee value, no problems. At the top of the letter the words "subject to contract" were clearly marked.
The scheme fell apart and no contract between the architect and the client was ever signed. The architect is claiming fees for work done.
Morally the client should pay but are they legally obligated to pay.
I think my advice will end up being ask a solicitor which is a bit embarrassing as the letter of intent was issued on the behalf of the client by our firm by a guy who has since left so therefore cannot explain what he was up to.
I'd really like to hear from anyone who has come across anything like this.
The letter congratulated the architect on the appointment and confirmed the fee value, no problems. At the top of the letter the words "subject to contract" were clearly marked.
The scheme fell apart and no contract between the architect and the client was ever signed. The architect is claiming fees for work done.
Morally the client should pay but are they legally obligated to pay.
I think my advice will end up being ask a solicitor which is a bit embarrassing as the letter of intent was issued on the behalf of the client by our firm by a guy who has since left so therefore cannot explain what he was up to.
I'd really like to hear from anyone who has come across anything like this.
As I understand it, a letter of intent is just that - a statement showing that the intention is there to do business.
The caveat here is that it's subject to contract - which was never signed - therefore I don't think there's any legal exposure.
But do please note I'm not a legal eagle in any respect - just my own understanding from personal work experiences. No doubt there will be a formal answer soon.
K
The caveat here is that it's subject to contract - which was never signed - therefore I don't think there's any legal exposure.
But do please note I'm not a legal eagle in any respect - just my own understanding from personal work experiences. No doubt there will be a formal answer soon.
K
blanc said:
I have been asked to advise on a situation by a client regarding the validity of letter of intent they sent to an architect. I'm not a legal person so this isn't really my place but I thought I'd ask here if anyone has come across a similar situation.
The letter congratulated the architect on the appointment and confirmed the fee value, no problems. At the top of the letter the words "subject to contract" were clearly marked.
The scheme fell apart and no contract between the architect and the client was ever signed. The architect is claiming fees for work done.
Morally the client should pay but are they legally obligated to pay.
I think my advice will end up being ask a solicitor which is a bit embarrassing as the letter of intent was issued on the behalf of the client by our firm by a guy who has since left so therefore cannot explain what he was up to.
I'd really like to hear from anyone who has come across anything like this.
The letter congratulated the architect on the appointment and confirmed the fee value, no problems. At the top of the letter the words "subject to contract" were clearly marked.
The scheme fell apart and no contract between the architect and the client was ever signed. The architect is claiming fees for work done.
Morally the client should pay but are they legally obligated to pay.
I think my advice will end up being ask a solicitor which is a bit embarrassing as the letter of intent was issued on the behalf of the client by our firm by a guy who has since left so therefore cannot explain what he was up to.
I'd really like to hear from anyone who has come across anything like this.
The LOI should really have dealt with payment for work done prior to signature of a full contract. BUT.....
Depends what was in the minds of the parties at the time of the LOI signature?
Any minutes of meetings? Any letters or correspondence which alludes to whether the architect was working at his own risk?
Vesuvius 996 said:
The LOI should really have dealt with payment for work done prior to signature of a full contract. BUT.....
Depends what was in the minds of the parties at the time of the LOI signature?
Any minutes of meetings? Any letters or correspondence which alludes to whether the architect was working at his own risk?
I have an e-mail stating that the appointment of the architect has been approved and we should instruct him accordingly, it was my ex-colleague that took it upon himself to insert "subject to contract" in the letter. The clients intention at the time was certainly to appoint he architect.
The letter was issued as result of phone conversation with the architect who was nervous about working at risk.
The the architect attended meetings that I believe the client was present at. I wondered if this signalled acceptance of a contract by both parties?
blanc said:
Vesuvius 996 said:
The LOI should really have dealt with payment for work done prior to signature of a full contract. BUT.....
Depends what was in the minds of the parties at the time of the LOI signature?
Any minutes of meetings? Any letters or correspondence which alludes to whether the architect was working at his own risk?
I have an e-mail stating that the appointment of the architect has been approved and we should instruct him accordingly, it was my ex-colleague that took it upon himself to insert "subject to contract" in the letter. The clients intention at the time was certainly to appoint he architect.
The letter was issued as result of phone conversation with the architect who was nervous about working at risk.
The the architect attended meetings that I believe the client was present at. I wondered if this signalled acceptance of a contract by both parties?
Hmm. The architect saw this issue coming. The tool working for you didn't even think of it.
Tricky one this. The architect clearly thought he was getting paid for work done as he addressed the issue and obviously got the assurances he wanted. If there is no correspondence indicating otherwise you might have a problem to be honest. Depends how hard nosed you want to be.
You could tell the architect to whistle for it, and see if he is prepared to sue you under an LOI - which would be risky. You would then obviously have a reputational issue in the industry which you may or may not be bothered about.
How much $$$ we taking about?
Edited by Vesuvius 996 on Monday 30th October 12:58
Not huge - £15K but more a problem for the client that they have no scheme and therefore no budget to pay it from.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
blanc said:
Not huge - £15K but more a problem for the client that they have no scheme and therefore no budget to pay it from.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
To be fair to your ex employee at least he had the common sense/luck to put that in there.
If the client instructed you to engage the architect, and they then attended meetings with the architect, they can't really argue that they thought they were getting the architect's time for nothing, in the absence of anything documenting the contrary.
They need to pay up, I think. Sounds to me like they are just trying it on.
If they didn't have budget then they shouldn't have started work. No excuse.
Edited by Vesuvius 996 on Monday 30th October 13:19
GreenV8S said:
Obviously the LOI isn't a contract, so what was it for?
Clearly to make the architect do some work in advance of the contract getting sorted out which would have been fine until everything fell to pieces pre-contract.
I have just found out that the architect attended meetings with the client after the letter. I think this shows there was an acceptance of a contract?
Although as a rule letters of intent are not considered binding contracts it is common in the construction industry to use them so that jobs can get done while the detail of the paperwork is finalised. I have known transactions that run into 9 figures which have started with groundworks done on letters of intent
It all depends on what the architect was led to believe. If it was made out to him that he would be paid for the work he ought to be paid, that is the industry way. There might be an argument that he ran up excessive costs, I don't know how much of the job would be covered by the fees quoted but practice under LOI's is only to do the work required to get to the next stage. It protects everyone because of the fragile nature of the paperwork
Generally the opposite side of the coin is that the client can stop the work at any stage provided payment is made for the work done to that point. That might not be the case if a formal appointment is made
It would also be relevant if the two had previously done work on the same basis. Previous practice is relevant to decide whether and to what extent one side is required to do work and the other is pay for it.
My view would be the architect is entitled to a reasonable rate for work reasonably carried out. It's a compromise but it fits normal practice
It all depends on what the architect was led to believe. If it was made out to him that he would be paid for the work he ought to be paid, that is the industry way. There might be an argument that he ran up excessive costs, I don't know how much of the job would be covered by the fees quoted but practice under LOI's is only to do the work required to get to the next stage. It protects everyone because of the fragile nature of the paperwork
Generally the opposite side of the coin is that the client can stop the work at any stage provided payment is made for the work done to that point. That might not be the case if a formal appointment is made
It would also be relevant if the two had previously done work on the same basis. Previous practice is relevant to decide whether and to what extent one side is required to do work and the other is pay for it.
My view would be the architect is entitled to a reasonable rate for work reasonably carried out. It's a compromise but it fits normal practice
Vesuvius 996 said:
blanc said:
Not huge - £15K but more a problem for the client that they have no scheme and therefore no budget to pay it from.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
I think the guy that used to work here put it in to provide the potential to argue just in case something went wrong. Now it has, I think it comes down the question of do those words actually mean anything?
Thanks for the advice, I think you're right they should pay something.
To be fair to your ex employee at least he had the common sense/luck to put that in there.
If the client instructed you to engage the architect, and they then attended meetings with the architect, they can't really argue that they thought they were getting the architect's time for nothing, in the absence of anything documenting the contrary.
They need to pay up, I think. Sounds to me like they are just trying it on.
If they didn't have budget then they shouldn't have started work. No excuse.
Edited by Vesuvius 996 on Monday 30th October 13:19
I'm in agreement here. The intent of the client was clearly to appoint the Architect, hence the letter of intent.
However, the insertion of 'Subject to Contract' is an interesting one. Is there any wording in the letter which requires the architect to start work prior to the contract being signed? Who called the meetings which the architect attended?
If the work prior to contract was instigated by the client or yourselves, then the architect needs paying for their time. However, if they took it upon themselves to get started at their own risk then they have left themselves exposed.
By the sounds of it your client knows exactly what they're doing and are trying to find a way around paying what is owed. Ethically, there is no question that the architect should be paid.
All IMHO.
We have appointed a third-party consultant to undertake about £100ks worth of work. Problem is, that the scope of each phase of the project cannot be fully determined for a while yet but we need them to start on this pronto. Thus, we cannot raise a purchase order beacuse we don't know the full amount.
We have issued a Memorandum of Understanding to enable them to start and they are happy with this.
It's a big, big firm who do things the right way so I'd suggest that if they're happy.........
We have issued a Memorandum of Understanding to enable them to start and they are happy with this.
It's a big, big firm who do things the right way so I'd suggest that if they're happy.........
Seems to me that your ex-employee feared that the email from the client instructing him to instruct the architect was not watertight, and was worried that if he instructed the architect and it went pear-shaped your company would be liable for the architects fees. Therefore he thought that if he wrote "Subject to Contract" on the letter this could get him out of any hole.
Whether he is right or not I am unsure!
Whether he is right or not I am unsure!
I guess a big part of this is, what is custom and practice in the construction industry?
I work in electronics, where Letters Of Intent, Memorundum Of Understanding, Heads Of Agreement etc abound. But they're meaningless and it's recognised that they have no monetary value attached. They just get signed as another step in the sales process, as supplier and customer cosy up to each other. The job only become real when a Purchase Order is issued.
I work in electronics, where Letters Of Intent, Memorundum Of Understanding, Heads Of Agreement etc abound. But they're meaningless and it's recognised that they have no monetary value attached. They just get signed as another step in the sales process, as supplier and customer cosy up to each other. The job only become real when a Purchase Order is issued.
What was the contract value?
I've only dealt with one construction project, but under letters of intent contractors were entitled to carry out up to £500k of work under a letter of intent!
I think in total there was something like £28m of work carried out under LOI's, but admittedly we hammered them for that.
Mars bar for the first one to guess the project.
I've only dealt with one construction project, but under letters of intent contractors were entitled to carry out up to £500k of work under a letter of intent!
I think in total there was something like £28m of work carried out under LOI's, but admittedly we hammered them for that.
Mars bar for the first one to guess the project.
BigAlinEmbra said:
What was the contract value?
I've only dealt with one construction project, but under letters of intent contractors were entitled to carry out up to £500k of work under a letter of intent!
I think in total there was something like £28m of work carried out under LOI's, but admittedly we hammered them for that.
Mars bar for the first one to guess the project.
I've only dealt with one construction project, but under letters of intent contractors were entitled to carry out up to £500k of work under a letter of intent!
I think in total there was something like £28m of work carried out under LOI's, but admittedly we hammered them for that.
Mars bar for the first one to guess the project.
Gotta be the Scottish Parliament Building?
chrisgr31 said:
Seems to me that your ex-employee feared that the email from the client instructing him to instruct the architect was not watertight, and was worried that if he instructed the architect and it went pear-shaped your company would be liable for the architects fees. Therefore he thought that if he wrote "Subject to Contract" on the letter this could get him out of any hole.
Whether he is right or not I am unsure!
Whether he is right or not I am unsure!
I think you may have hit the nail on the head.
Have advised the client to pay them what they are owed. Basically everyone knew that they meant to employ the architect, it's just they saw the subject to contract clause and saw an opportunity try and wriggle out.
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