What is a Letter of Agreement and How It Protects You

You must learn how to write a formal agreement letter if you engage in business. It is a type of business document. It explains and sets the terms of a working agreement between two or more parties.

What is a Letter of Agreement?

We call a letter agreement, letter of agreement, or an agreement letter by many names. It documents an agreement between two or more parties.

Like a letter, the agreement is structured so that it outlines the terms of agreement between the two parties. It should have separate paragraphs with a date line and places at the bottom for signatures.

A contract is a specificagreement with a signature and in writing. Usually, it is created with the supervision of a lawyer. The terms and conditions of such a contract are enforceable in court.

A letter of agreement is between two parties. It is also called an MOU or Memorandum of Understanding. This agreement may or may not be an enforceable contract. 

This is because it has less detail than a contract. It is also used for business deals where smaller amounts of money are at risk such as Scope of Works.

When to Use a Letter of Agreement

You use a letter of agreement when you need the person you are negotiating with to make sacrifices or concessions in the agreement.

If you are negotiating a contract with a prospective employee, you will make specific promises in a letter of agreement. The letter of agreement protects you legally.

Items in a letter of agreement are not subject to the laws of negotiation, moral obligation, or doing the right thing. This serves as protection despite the idea of negotiating being fair and being honest.

Is a letter of agreement legally binding?

Yes, a letter of agreement can be legally binding. Once the letter of agreement outlines the duties and responsibilities of both parties it can be enforceable in a court.

Writing the letter of agreement

First, you should meet with the person you plan to sign the agreement with to discuss the terms you wish to agree on.

Feel free to debate specific provisions in the contract. In order to solve any issue you’re unhappy with, you should have the other party remove that provision. Get the terms that you want added as well.

Make sure you consult the notes you took during your meeting/negotiation before you write the agreement letter. Try to organize the information into an outline. Then you are ready to write.

How to write a formal agreement letter

The first thing you must do when you start to write your contract is state the work to be performed. You must also outline any deadlines or timelines.

Describe how revisions or edits are going to be handled. This should include the number of revisions to be done. Additionally, include how much you will be paid and when the payment(s) must be made.

Make sure that both parties agree on the terms listed above. Don’t forget to add spaces for the signatures of both parties below.

To Wrap Up

Letters of agreement save you from trouble when one or both parties deviate from the agreement. They can be legally binding.

Generally, you need to sign a letter of agreement. This is done if you are engaging in a transaction in which one person provides a service to the other. Because these agreements are made directly between two parties, they can save on the expense of a lawyer.