A letter of demand is a formal demand for action by a third party.
While a letter of demand may seek that the third party do a certain thing (for example, the performance of contractual obligations) or stop doing a certain thing (for example, stop infringing someone’s copyright), the most common form of letter of demand seeks payment of a debt owed.
What should a letter of demand include?
Properly drafted, a letter of demand for payment of a debt will usually state:-
the amount owed
why the amount is said to be owed (for example, an unpaid invoice, or monies owing pursuant to a loan contract)
how the amount is calculated (for example, the amount of an invoice or, using the loan contract example, how many loan instalments are overdue)
details of any previous promises of payment made by the third party
a time period for payment to be received – typically a short period of either 7 or 14 days; and,
what will happen if no response or payment is received – generally, that legal proceedings will be commenced if payment is not received.
In some cases it might be appropriate for a copy of any supporting documents (for example, tax invoices, contracts, agreements and/or any prior reminder letters sent) to be attached to the letter of demand.
A letter of demand seeking any other remedy should provide sufficient information to allow the recipient of the letter to identify the action it is required to take (or cease) in order to satisfy the demand.
Why should I send one?
A letter of demand gives the recipient one final chance to take action to prevent the matter escalating further and conveys the seriousness with which the matter is being treated (i.e. that the next step is litigation).
While it is not necessary to send a letter of demand prior to commencing proceedings, Courts and Tribunals generally like to see that you have taken reasonable steps to resolve a dispute prior to proceeding to litigation. If litigation is commenced without a letter of demand having first been sent, you may not be able to recover the litigation costs from the other party. Depending on the nature of the dispute there may be significant up-front costs associated with commencing proceedings. In this respect, to the extent it is capable of doing so, a letter of demand represents a cost-effective means of resolving a dispute. A letter of demand also has the advantage that a response may prompt notification of a particular defence to the claim of which the claimant was unaware (thus allowing the claimant to prepare for that defence in any ensuing litigation, or even allowing the claimant to abandon the claim without incurring litigation costs should the defence be genuine).
A letter of demand should be viewed as a “weapon of last resort” and should not be sent lightly.
When should I send one?
While letters of demand should form part of the standard credit control process implemented by any business (or individual), they should only be sent where other friendlier attempts at seeking the desired action/payment have first been made.
In some cases, a simple telephone call or email reminder regarding an outstanding tax invoice is enough to prompt payment. If payment of the invoice had simply been missed inadvertently, the recipient of the invoice will likely appreciate the informal approach and being given the chance to remedy the mistake. Conversely, issuing a letter of demand without discussing the matter with the recipient of your invoice is unlikely to be appreciated.
Where a third party has indicated an intention not to pay your tax invoice, and you do not consider any dispute raised with the invoice to be reasonable or genuine, we recommend that you skip the friendly steps and go straight to a letter of demand.
Who should I send the demand to?
In the case of an individual, the letter should be sent to the person’s postal or email address.
In the case of a company, a letter of demand should be addressed to the proper officer of the company at the company’s registered office, as set out below: –
The Proper Officer
[Name of Company]
[Address of Company]
As many companies use the office of their accountant or financial advisor as their registered office, we also recommend that you send a copy to the company’s business address (or email address, where appropriate).
Do I need a Lawyer to write a letter of demand?
You do not need a lawyer to write a letter of demand. There are, however, a number of advantages to having a lawyer draft and send the letter for you. The greatest advantage is that the letter will be on the law firm’s letterhead. This, in itself, gives an indication to the recipient of the seriousness with which you are treating the matter.
If you seek more comprehensive legal advice prior to issuing the letter of demand, it may also be that the lawyer is able to identify other potential actions or claims to include in the demand, increasing the persuasiveness of the demand.