A letter of demand or LOD is a simple letter from one person to a third party, a company, or organisation requesting specific actions. A letter of demand doesn’t have to be sent by a lawyer and is not a formal court document, but there are benefits from sending via a registered law firm.
A letter of demand is commonplace in debt recovery situations as formal notification that proceedings will commence unless the money is repaid. Individuals are free to send a LOD without legal input.
A letter of demand is not a requirement before legal action, but can be a good first step to highlight attempts to resolve the situation prior to legal action being taken.
What does a letter of demand mean?
A letter of demand doesn’t start a chain of events or act as a precursor to litigation unless the claimant decides to take that step. A claimant can start legal proceedings, follow another action, or drop the matter altogether.
For the recipient, a LOD usually requires repayment of the debt within a specified deadline, but it is not a legal letter as such. However, sometimes, a LOD is intended to be the overture to legal action.
How to write a letter of demand
Whilst claimants don’t need to consult a lawyer to write a letter of demand, there is a form and a structure for a LOD, and certain information which should be present.
The claimant’s identity should be clear, and there must be a concise and accurate description of the dispute, including a summary of the material facts and the claim made. The claim should have enough detail rather than a simple figure so that a breakdown might include interest on the overdue sum and the cost of legal fees.
If you are using a lawyer or intend to, their details should be present; this often incentivises the recipient and encourages them to pay.
Most importantly, a letter of demand should contain a deadline after which further action will be taken if the debt has not been repaid or a payment arrangement has not been agreed upon.
What are the advantages of a letter of demand?
There are a few benefits associated with sending a letter of demand, and these include:
- A claimant can write the letter themselves; you don’t need to pay a lawyer to do it for you.
- A letter of demand can do the trick and persuade a debtor to pay up, meaning there is no need to instruct a solicitor and go to court, avoiding potentially expensive legal fees and a protracted process.
- A LOD can be admissible in court as evidence that the claimant attempted to resolve the matter
Legal terminology in a letter of demand
If your solicitor writes a LOD, you may see specific terminology. Sometimes, claimants copy these phrases when they compose their LOD, so it’s essential to understand what they mean and when to use them.
Without prejudice
Without prejudice is a simple label designed to protect the writer’s legal rights in correspondence to try and settle a dispute. However, in practice, using this phrase is much more complicated.
If you make an offer of terms to the recipient for the repayment of your debt on a ‘without prejudice’ basis, it means that if you later go to court, your position won’t have been adversely affected or prejudiced.
If you offer a payment plan to the debtor, for instance, and they reject it, you may decide to go to court and press for immediate repayment of the total amount. The debtor cannot submit your ‘without prejudice’ LOD to the court to suggest that more lenient terms were available, and that they would prefer to accept the original offer. Essentially, the letter cannot be used against the writer.
The idea behind the ‘without prejudice’ rule is that parties can negotiate in the period before litigation without worrying about weakening their position should the dispute eventually end up in court. It’s an opportunity for an open and good faith discussion without fear of later sanctions to encourage every opportunity to broker a settlement.
Here are some other commonly used phrases in a letter of demand:
- Default – failure to pay the debt or perform some other obligation such as sticking to the terms of a payment plan.
- Premises – everything set out in the letter, so the essential elements of the claim.
- Reserving rights – this means that despite the terms set out in the letter, which may be concessionary to facilitate a settlement, the writer still reserves their legal right to go to court to recover the money owed.
- Alternative Dispute Resolution – Alternative Dispute Resolution or ADR covers different mechanisms to resolve disputes including mediation and arbitration. These are often quicker and less costly alternatives to going to court and may be suggested in a LOD if the recipient doesn’t agree to the terms.
Should I send a letter of demand?
There is always a purpose to sending a letter of demand, even if you don’t intend to follow it up, as it may just hit the mark. However, a letter written by you without legal representation, may have less impact.
A LOD is not an official legal letter, so the recipient may ignore it. It could also encourage them to take legal advice and refute your claim more forcefully.
The debtor may contact you and want to agree to or negotiate terms, so you must be prepared for this when you write the letter.
How to write a letter of demand?
Anyone can write a letter of demand, but something poorly drafted and not well presented will inevitably have less impact. Many templates are available online to act as guidance, but here are a few things to remember.
- Write in a normal tone; don’t attempt stilted or overly formal language in an attempt to mimic a solicitor.
- Be polite and stick to the facts – rudeness is likely to elicit the wrong response from the recipient.
- Summarise the facts clearly and chronologically; a bulleted list is helpful.
- Avoid commentary or opinion; let the facts speak for themselves.
- Attach copies of invoices or receipts that support your claim.
- Set out clearly in the letter’s final paragraph what you are prepared to accept from the debtor. You might invite them to negotiate with you to set up a payment plan, but generally, it is better to be specific and suggest instalments and a timescale if you are prepared to accept that.
- Whatever you suggest, there must be a precise time limit within which the recipient must respond. Make sure it is clear where the recipient should respond, either with your contact details or those of your solicitor.
- Conclude the LOD by stating that you intend to start legal proceedings if the recipient does not respond. Don’t invite them to make a counteroffer; if they’re willing to negotiate, then that will follow naturally if they don’t like the terms suggested.
How to send a letter of demand
A LOD must contain a time limit for response, so it’s essential to know whether that letter has been received or not.
Send the LOD by registered or tracked mail so you know that it has arrived and when. Usually, time limits run either from the date of the letter or the date of receipt of the letter. If the latter, you must use registered mail to know when the letter arrived. It’s too easy for the debtor to claim they never received it.
Keep a copy of the LOD, plus any postal and tracking documents.
What should I avoid in a letter of demand?
It’s all too easy to resort to anger and threats if someone has failed to repay money they owe to you. However, this is only likely to make the situation worse and won’t encourage resolution.
The general tone of a letter of demand should be neutral, convey the facts, and make it clear that legal action is an option if the terms of the letter are not followed. Keeping the letter factual and reasonably conciliatory is usually a far more productive approach.
Stick to the facts and the repayment of what you are owed. You may be able to add interest to the debt or suggest that interest will start to run if you are not repaid; the court will undoubtedly add this if you resort to litigation.
However, don’t make wild and supported claims for things which cannot be legally justified, like damages for stress and anxiety; this will only backfire.
What happens after I send a letter of demand?
You should be clear about what you will do after the letter of demand has been sent. You also have the right not to pursue the debt at any time pre-litigation.
It’s worth thinking about how the recipient could respond, so that you are prepared for a counteroffer, negotiations, or a downright refusal to pay. What happens next is ultimately up to you. In complex debt recovery situations, it is always better to take legal advice sooner rather than later.