A letter agreement is a written legal document that is made between two parties who want a simple way to make their discussions of a transaction official. An agreement letter is binding by the law and can technically be written by just about anybody, but whenever possible, it’s smart to have to have an attorney draft or review the letter because they are trained professionals who can make sure there are no major issues with the terms of the agreement.
While some verbal agreements may be upheld in a court of law if a dispute comes about, it is safest to have an arrangement in writing so that more than just unvalidated claims are available. A letter agreement will guarantee that the terms of your transaction or promised services are enforceable.
A letter agreement is no less official than a more thorough contract when looking at it from a legal standpoint, although it may not provide the same level of detail and protection as a more comprehensive contract. The level of formality and detail in an agreement should depend on the complexity and significance of the transaction.
This agreement can be finished by obtaining all signatures by the parties or just by an exchange of two letters which both detail the same agreement and show the parties’ intent to be bound by it.
A letter agreement should be used when a more complex contract is not needed due to the non-complicated facts regarding your transaction. If there is not a contract template available for what you are agreeing to then an agreement letter may come in handy.
This type of agreement is very simple because you really only need to ensure three things are included: an offer; a consideration; and an acceptance. However, if these elements are not included in the letter agreement, then it is not valid from a legal standpoint and if one party is wronged by the other there will be no way to professionally solve the issue.
Depending on the nature of the agreement, there might be additional requirements for the terms of the contract. For example, a letter agreement for the sale of goods may require a clear identification of the parties and the goods to be sold.
Letters agreements are sometimes used by people who owe debt to avoid going into bankruptcy over payments they cannot make. This gives the people owing money the chance to settle their debt for less than the total amount owed. It is important to note that debt settlement agreements can vary in complexity, and may require something more substantial than a letter agreement.
Writing a letter agreement might not be as difficult as other contract types but there are still elements that you must include in it if you want it to be considered relevant and valid. See below for steps to take when drafting an agreement letter:
Step 1 - Formatting. Format your document the way a formal letter would appear and use the same font throughout. Put the date in the upper left corner. Beneath the empty space put the company or individual’s name who you are writing to followed by their address and who the letter is intended for.
Step 2 - Topic. Write ‘Re:’ and right after that briefly type in the purpose of your letter highlighting the key points.
Step 3 - Greeting. Greet the individuals or company you are writing to before getting straight into the content.
Step 4 - Body. This is the longest and most important part of the letter agreement and will contain the following essential information:
Step 5 - Signatures. Signatures of all parties should be the final part of a letter agreement and the date each party signed needs to also be written. If one of the parties wants to have additional proof that they both signed the contract, then they can take the additional step of having it notarized.
View a sample letter agreement here to get a look into how it should be written.