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Letters of Demand

Letters of Demand

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What is a letter of demand?

A letter of demand (“LOD”) is a letter sent from one party i.e. the claimant to the receiving party which sets out the claim the claimant have against the receiving party.  For example, the claimant may have an outstanding debt owing to them and the first step would therefore involve the claimant sending a LOD to the party that owes them this debt. This party is known as the “debtor”. A LOD is usually prepared by a lawyer and would typically set out the amount outstanding, the timeframe in which the claimant expects to be paid and would further state that legal proceedings may be commenced without further notice if the debt is not paid within the specified time period.

Purpose of a LOD

A LOD serves two purposes. It warns the debtor that the claimant intends to take further action unless the debt is paid. If the debt is not paid, and the matter proceeds to court, the LOD can be used as evidence for the claimant to show the court that steps had been taken to resolve the matter and a final opportunity was given to the debtor to make payment.

Generally, the background information to the claim, including the contract (if any), invoices or other documents, will be highlighted and/or attached in the LOD. It is advisable for the LOD to be sent by registered post or delivered by hand so as to ensure that the debtor receives it with sufficient time for the debtor to comply with the claimants’ demands.

If the debtor fails to answer or otherwise ignores these demands, the claimant can choose to initiate legal proceedings against them.

Benefits of using a letter of demand

The usual course of action for a claimant before they choose to commence legal proceedings against the debtor would be to send a LOD. This would give the debtor a final opportunity to pay the debt outstanding before the claimant resorts to the court for relief. Sending a LOD can prove to be cost-effective and beneficial as it may save legal costs and time by avoiding the need for legal action should the debtor make payment early.

How to write a letter of demand

A LOD is not a court document and it can be prepared by the claimant themselves. However, a LOD can be a powerful document if it is constructed well.  Hence while a claimant may choose to draft the LOD themselves, it is advisable to engage a lawyer to prepare the LOD as the lawyer will be in the best position to advise the claimant on the best legal cause of action. If a claimant wishes to draft a LOD themselves, here are some general guidelines to keep in mind:

  • The action or payment being demanded should be stated clearly and such includes a breakdown of the debt;
  • The reasons for demanding the action or payment;
  • Details of the contract or other documents being relied on for the claim of the debt;
  • The time limit for the debtor to comply with the demand;
  • The claimants’ contact information and details of how the debtor is to make payment; and/or
  • The consequences the debtor may face if payment is not made by the specified time.

It is always encouraged for a claimant to be  civil when writing the LOD as such conduct usually encourages the debtor to come forward and make the payment or negotiate a settlement plan. A claimant should keep in mind the pointers above, and remember to make copies of both the LOD and the registered post slip for future reference. This can serve as proof when the claimant decides to take further legal action if need be to show that  the debtor has indeed received the LOD should they argue they never did.

 

To learn more about credit recovery, take our course on Credit Recovery and Dispute Resolution. More details can be found here:

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