Jenny Pattison on letters of intent in the construction industry
Where a project needs to proceed without delay, letters of intent can form a useful temporary solution permitting a contractor to start the preparatory and/or main works, pre-order materials and instruct sub-contractors/suppliers before the formal building contract has been concluded. The recent case of Diamond Build Limited v Clapham Park Homes [2008] EWHC 1439, [2008] All ER (D) 353 (Jun) provides a timely reminder to proceed with caution in agreeing the terms of such a letter, to monitor the progress of the instructed works, and most crucially, to agree and execute the formal building contract at the earliest opportunity.
A letter of intent requires a contractor to commence work pending formalisation of the building contract. The court in British Steel Corporation v Cleveland Bridge and Engineering Company [1981], [1984] 1 All ER 504 outlined three possible categories:
- ● a “letter of comfort” expressing an intention to enter into a formal building contract in the future;
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