Incentives and limits in letters of
intent: are they worth the paper
they’re written on?
Sarah J.V. Fox
Department of Law, University of Salford, Salford, UK
Purpose – The purpose of this paper is to review the extensive case law in England and
Wales on contractually binding letters of intent. The research focused on discovering whether the
limits commonly found in binding letters of intent were upheld by the courts and so were
effective in practice. It also reviews whether these limits are, as presumed by drafters, sufcient to
act as incentives to the parties to conclude the full contract. The paper uses case law to analyse
and evaluate the legal and business efcacy of these limits and incentives. It considers the
rationale for such limits and incentives before drawing its conclusions and making
Design/methodology/approach – The paper draws on cases in England and Wales to
analyse the judicial interpretation of binding letters of intent. The author has adopted a black letter
approach to this subject by focusing almost exclusively on primary sources. As there is no relevant
legislation in England and Wales, the primary sources are case law. A limited literature review was
adopted, as there is little commentary on this aspect of letters of intent and to ensure the
paper’s originality. The paper also considers papers published by the Society for Construction
Findings – The paper demonstrates that even if the drafting of the letter of intent is clear, it is the
conduct of the parties after a letter of intent which prevents the stated limits on work times or cost
applying, and undermines these limits in their roles as incentives intended to persuade the parties to
conclude the full contract for the project. The terms of the letter of intent are easily ousted and may not
be strictly enforced by the courts when a dispute arises.
Practical implications – The paper concludes with recommendations for ensuring the terms of the
commonly used letters of intent provide more effective limits on the liability for the employer while
giving the constructor the incentive to continue negotiating and concluding a formal contract for the
works. The paper also recommends changes to the guidance to be given to users of standard form letters
of intent to improve their efcacy as limited contracts.
Originality/value – The analysis of the cases is instructive and the recommendations provide
valuable pointers for those who draft, review or agree letters of intent. The issues that are dealt with
relate to how the parties can be incentivised through clear drafting to execute a more comprehensive
contract for the project.
Keywords Incentives, Case law, Construction law, Letters of intent, Limits on liability,
Paper type General review
Excellence is never an accident. It is always the result of high intention, sincere effort, and
intelligent execution; it represents the wise choice of many alternatives – choice, not chance,
determines your destiny.
The current issue and full text archive of this journal is available at
International Journal of Law in the
Vol. 6 No. 3, 2014
© Emerald Group Publishing Limited