A letter of demand is a formal correspondence requesting the settlement of an outstanding debt or the fulfillment of a contractual obligation. It is typically employed when other informal attempts to resolve a debt or issue have failed. It is crucial that adequate time is afforded for payment or action before drafting the letter of demand, as it serves as the final request before further legal steps are considered.
Key elements of a letter of demand should include:
- Date and Contact Information: The letter should clearly state the date, and include the contact details of both the sender (creditor) and the recipient (debtor).
- Relationship Between the Parties: A brief description of the nature of the relationship between the parties involved (e.g., business transaction, contractual agreement).
- Description of Goods, Services, or Transactions: A detailed account of the goods, services, or transactions provided by the creditor to the debtor, which have led to the outstanding debt or unfulfilled contractual obligation.
- Outstanding Amount or Unfulfilled Obligation: A clear statement of the amount that remains unpaid or the specific contractual obligation that has not been met.
- Previous Actions Taken: An outline of any prior attempts by the creditor to recover the debt or encourage compliance with the contractual terms, including any reminders, notices, or correspondence sent.
- Demand for Payment or Fulfillment: A direct demand specifying the final date for payment or the deadline for compliance with the contractual obligation, along with any associated conditions, such as interest or penalties.
- Consequences of Non-Compliance: A statement outlining the potential legal consequences should the debtor fail to meet the demands.
- Tone: It is important to note that the tone of the letter should remain formal, polite, and professional.
A letter of demand serves as an alternative to legal action and, in many instances, is required as the initial step. This encourages settlement without the need for further legal intervention, thereby saving the parties both time and money. Additionally, if the matter proceeds to a tribunal or court, the letter of demand can be used as evidence to show that the creditor made reasonable efforts to resolve the dispute through an out-of-court settlement. This can impact the court’s decision on costs if the matter eventually goes to trial.
Upon receiving a letter of demand, it is essential to assess whether you have an outstanding debt or an unfulfilled contractual obligation. If you believe the demand is inaccurate, you may be able to dispute the debt, or the unfulfilled contractual obligation claimed.
The information provided in this article is general advice only. Given that each situation is unique, we recommend you contact our litigation and commercial disputes team if you have any questions the information contained in this article. Our team can be reached on (03) 9311 8911.
