Letter of Agreement Form

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A letter of agreement form is a document used to explain the terms and conditions of a relationship. It takes the terms and conditions that would be found in the actual contract and summarizes them in letter form. The parties can then finish negotiating the details before it is put together as a legally binding contract. A letter of agreement can, in some states, be legally binding if it is signed by all participating parties.

Letter Of Agreement: What Is It?

A letter of agreement is a letter used to outline conditions. It may be used for employment conditions between an employer and new employee. It could also be used for an independent contractor who is providing a company with various services. A letter of agreement outlines expectations and protects both parties.

The letter should include as much information as possible about the project or employment offer. This will ensure that both parties are protected to the full extent. Be sure to include information about payments, service quality, and job duties.

In order to be legally binding, the letter will require the signatures of both parties. A witness may also need to sign. The letter of agreement can serve as a contract in some cases, so it is important to double check the information and clarity of the form.

Letter of Agreement Definition

A letter of agreement is an offer to take specific action. It could be used to document that the parties agree to the selling and buying of a business, real estate, other goods, and services (such as an employment contract). It outlines what the parties agree will happen within a certain time frame. 

When to Use a Letter of Agreement?

The most common use of a letter of agreement is to use as written proof that the named parties agree to enter into the specifically explained agreement. It may be used between someone who wants to sell their business and someone who wants to purchase it. It may outline the terms of the agreement, such as the buyer must secure financing or close on the property within 60 days of creating the letter of agreement, provide a certain amount of money as a down payment, and other specific terms. It may also be used to confirm the employer-employee relationship between the parties while also outlining the duties of each. 

What are the main sections of a Letter of Agreement?

A letter of agreement is created by the person making the offer. Generally, it is only about a page long. It includes information about the parties, the offer being made, and any terms related to the offer. However, it can also be turned into a Memorandum of Understanding (MOU) which is much longer and more closely resembles a formal contract. It includes the main points of the offer using clear language. Depending on the complexity of the offer, it may include information about attorney fees and costs, choice of governing law, and assignments. After the letter of agreement or MOU is complete, the offeror signs it and sends it to the offeree. The offeree may counter the offer. If they wish to make changes, the parties go through the process again. It is hoped that eventually the parties will settle on the terms and the person making the offer will sign and date the agreed terms. The person or business receiving the offer may also sign and date to indicate their acceptance of the letter of agreement. 

The role of a Letter of Agreement in Bankruptcy

Letters of agreement also play an important role in helping someone avoid the need to file bankruptcy. It is a voluntary process wherein the debtor and the business (which would most likely be considered an unsecured creditor during the bankruptcy process) agree to compromise and settle the existing debt for less than what is owed. This benefits the creditor by helping guarantee they will receive at least some of what is owed to them as opposed to the full amount being discharged if the debtor were considered to have no assets in the bankruptcy process. 


Contents of a Letter of Agreement

contents of a letter of agreement

Formal negotiations are all well and good, but how do businesses and contractors cement a deal once it's been made? The answer is simple - a letter of agreement. A letter of agreement formalizes a business deal by clearly stating in writing the terms of the agreement. Your standard letter of agreement template consists of a few basic components. To make life easier, we've outlined these below.

Opener

This is simple. State the purpose of the letter of agreement. Feel free to keep it as short as one or two sentences - you don't need to divulge details at this stage of the letter. Your opener should say something like this:

The purpose of this letter of agreement is to define the terms of the upcoming merger between Barty Blackfish and Mean Green Steam Machine, Ltd.

Boom. You're done. Now you can move on to the details .

Services Rendered

In this section, describe exactly what each party promises to do for the other, with the exclusion of compensation (that needs its own section). For example:

Barty Blackfish agrees to write a three-page pamphlet promoting the goods and services of Mean Green Steam Machine, Ltd. Information for the aforementioned pamphlet will be provided exclusively by Mean Green Steam Machine, Ltd. Mean Green Steam Machine, Ltd. will also cover 100% of the cost of printing and distribution.

Fee

This is fairly self-explanatory. State the amount of compensation the company will provide to the contractor. For example:

Mean Green Steam Machine, Ltd. agrees to pay Barty Blackfish a flat fee of $3000 for timely completion of the aforementioned brochure. Compensation hinges upon the brochure being completed in a timely manner and meeting the specifications instigated by Mean Green Steam Machine, Ltd.

Additional Costs

Any exceptions to the fee terms mentioned above should be defined in this section. It should be made clear which entity will accept responsibility for reasonably outstanding circumstances, such as unexpected costs induced by delay or third-party intrusion.

Timeline

Here, it should be made clear what exactly "timely fashion" means. For example:

Barty Blackfish agrees to provide the aforementioned brochure in its completed form to the Mean Green Steam Machine, Ltd. by April 24, 2013.

Payment Terms

How does this section differ from the "fee" section, you may ask? The " payment terms " section details the basis on which the contractor will receive payment. For example:


$1500 will be submitted to Barty Blackfish within three days following the signing of this letter of agreement. The remaining $1500 will be issued to Barty Blackfish upon timely completion of the project.

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Sample Letter of Agreement

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Sample Letter of Agreement

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