Legalese: A letter of intent needs to be handled with the level of care appropriate to a full appointment, says Mark Klimt
With appointment contracts becoming increasingly complicated and protracted negotiations being usual, clients will often produce a short letter of intent for their architect to sign, in order to enable a project to get under way while the detail of the appointment is ironed out.
Such a letter may look simple and innocuous, but there are certain clauses that do need to be included and there are certain considerations that need to be borne in mind when faced with such a letter.
At its simplest, the letter should rehearse that the parties intend to finalise a full contract in relation to the project, (brief details of which should be provided) and that, in anticipation of it being finalised, the architect is authorised to proceed with certain identified services. It is usual for the letter to be capped at a certain value, with provision for this to be increased by mutual, written agreement.
An obvious point for the architect to check is that the letter is being issued by the same entity as the party who is intended to be the client under the finalised appointment. As the letter will deal with the provision of services, the applicable duty of care needs to be set out and the services which are to be provided clearly described.
If there is to be a cap on the value of fees to be incurred under the letter, the services need to be limited accordingly. It will be at best messy if the architect unwittingly signs up to provide all of the project services for a curtailed fee.
Letters of intent frequently operate for a prescribed limited period of time. This is a useful discipline to encourage the negotiating parties to complete their negotiations and enter into the full appointment; but the wording of the letter needs to make it clear that the architect is not guaranteeing that it will complete the listed services within the finite period of the letter. For the client’s protection, the letter will usually oblige the architect to maintain professional indemnity insurance at a stipulated level. Correspondingly, a cap on liability should be added.
The parties need to be aware that, while the document they have entered into is intended to be binding as far as it goes, the reason for a letter of intent is that the full appointment has not been finalised – and indeed may never be entered into. Provision should, therefore, also be made for copyright to remain vested in the architect and for the licensing of materials (subject to payment of outstanding fees and no liability for misuse).
On the other hand, if a full appointment does come into existence, the parties will not want the complication of services in relation to the project having been carried out under different documents. Therefore a letter of intent will standardly provide for the letter to be subsumed into the full appointment once it has been finalised and for all services performed under the letter to be treated as having been performed pursuant to the finalised appointment. It follows that the architect will not be able to agree any term in the full appointment which has not been complied with as far as the letter of intent services are concerned, otherwise it will be in immediate breach of contract.
When faced with a letter of intent, architects need to bear in mind that negotiations on the full appointment are still ongoing and that there is a risk that concessions they make in relation to the letter may serve as an unhelpful precedent in those ongoing discussions.
Above all, the same guiding principles that apply to appointments should be applied to letters of intent, namely: clear terms, underpinned by the exercise of reasonable skill and care, stating what services are to be provided and for a transparent fee.
Mark Klimt is a partner at law firm DWF