What is Letter of Agreement?

Letter of agreement is used between:

  • Employee and employer
  • Contractor and company
  • Customer and vendor
  • 2 neighbours
  • 2 companies

It can be said that such letter defines expectation of both the parties. In order to protect both the parties, it is advisable to add as much information as possible in the letter. This information can be related to job duties, quality of services, payment details, deadlines, time periods, schedules, cost of the project etc. Legally letter is valid only when both the parties provide their signatures. In some cases, a signature of the witness is also needed.

Also double check the information you have added in an agreement letter because in certain cases such letter is also served as a contract. In order to simplify arrangements between 2 parties, such letter is needed.

Agreement letter cannot be:

  • Vague
  • Confusing or
  • Indefinite

If it is vague, confusing or indefinite then the letter may be stated as an invalid document.

How to Write an Agreement Letter?

Don’t make use of complicated English while writing a letter of agreement. Always make use of plain English and don’t show off by using legal jargon. Legal Jargon can be confusing for both the parties.

Cover unexpected contingencies

In your agreement letter, there should be a paragraph which covers unexpected contingencies. You are not god, to know the future. So it is important to keep that margin or leeway in your letter that can protect you from unexpected circumstances.

For example, you have signed a letter of agreement with the contractor who is going to add a new roof to your home. He has promised to complete the work in one week. Sudden change in weather, invited rains and this made it difficult for the contractor to complete the work in said time period. In such situation, a clause of unexpected contingencies can come to the rescue of the contractor.  

Laws differ from state to state

The items, that you include in your letter should be added in points or numbers. In future, this habit can make it easy for you to refer the agreement letter. Add points, after considering the law of the state where you are working or residing. According to the law, if legal limits have been crossed then your letter cannot be sustained in the court.

Basic Reasons for Drafting Letter of Agreement

Drafting letter of agreement can become difficult, if you don’t know when exactly to draft a letter. Following are the few reasons, when you can draft the letter of agreement:

  • If you are entering into new business relationship
  • If you are ready to get into the agreement that defines working terms and conditions
  • If you want to define monetary contribution of investor

There are many such reasons when you can draft such a letter. Why is it so important to write a letter of agreement? Is it useful? Yes, it is very useful because you can use it to start negotiations. In certain situations, it is also used as a formal business contract.

Difference Between Contract and Letter Agreement

What is the difference between contract and agreement letter? There is nothing empirically different but such letter agreements are said to be the subdivision of contracts.

First, you need to know, what is a contract? The contract is something, that is related to offer and acceptance with definitely certain considerations. It can be said that agreement letter, is one form of contract. Going by the typical definition, if you have a valid letter of agreement then definitely you can have a valid contract.

It is very important to work legally while drafting a letter of agreement because it can easily go invalid. Some of the reasons that make such agreement voidable are like:

  • Going against public policy of the state
  • Drafting overly comprehensive agreement
  • Lack of consideration

Effective Agreement Letter Writing Tips

Now you know that, this agreement letter can be your legal document and so it becomes important for you to draft it carefully and intelligently. It is important for you to follow below-mentioned tips while creating letter of agreement:

  • Foundation of your letter should be strong and it is possible when you know the clauses that are needed to be added in the letter.
  • Any kind of vagueness in the letter can harm both the concerned parties.
  • It is important for you to pay attention to some minute details related to agreement date, goods description, the name of the concerned parties, profit sharing ration etc.
  • When two parties come together for the particular venture, it becomes important to mention the reason clearly in a letter.
  • Don’t forget to add the title of a venture.
  • It is important to mention the duties and rights of all the parties in order to avoid future disputes.
  • A good letter of agreement is the one, in which you do not leave anything to chance or destiny. So it is advisable to mention even the simplest duties and rights.
  • Mention details related to liability of members to the third party. Here the third party means, the party which is not the part of agreement letter or contract.
  • Ask for professional assistance if you are finding it difficult to define the terms and conditions in the letter.
  • In order to make it a legal document, you should ensure that all the concerned parties have signed the letter of agreement. You should get the letter registered with the right authority.
  • As said before, the language of the letter should be simple so that everyone can easily understand legal terms.

Important Components Related to Agreement Letter Writing

Letter of an agreement is like an exchange of promises that is done in order to complete a particular action or to define a particular relationship. From individuals to business firms, all can draft such a letter. When some kind of communication and interaction comes on a piece of paper, it becomes an agreement letter. Given promises and agreed policies are discussed in this type of letter.

This type of letter is an important tool for business communication. First, it is important for you to create the rough draft so that any kind of required changes can be made easily in the later stage.

Date, your name, place, the name of business, mailing address, zip code, proper title, recipient’s name, salutation, paragraphs, closing statement, signature etc. are few things that need to be the part of your agreement letter.

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