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Letter of Understanding Template
What Is a Letter of Understanding?
A Letter of Understanding is a formal document completed to confirm the consent of one party to the terms and conditions discussed with the other party before in a verbal conversation. Since the negotiations process leading up to the contract signing may take weeks or even months, the parties usually communicate with each other, each of them offering new provisions and ideas that will be implemented in writing.
You can find a Letter of Understanding template through the link below.
A business Letter of Understanding is the perfect tool to let the other party know your intentions and goals, express your disagreement with a certain clause they would like to include in the contract, and speed up the process of entering a transaction. This document will not be accepted as evidence since it cannot be legally binding but it is the most convenient way of communicating your wishes as a common courtesy between two individuals or companies who try to seal the deal.
How to Write a Letter of Understanding?
Follow these steps to compose a Letter of Understanding:
- Although there is no uniform Letter of Understanding format you must adhere to, keep the document formal and professional - it will be reviewed by the other party and their attorneys, and you need to make a good first impression especially if you are preparing your first business deal.
- Name all the parties involved in the negotiations and make references to the contract you are discussing and previous letters and files you have shared with each other.
- Decide whether to put the entirety of the future agreement in the Letter of Understanding or simply list provisions you agree to comply with - in most cases, there is no need to draft a letter of many pages if you are only demonstrating your consent to the proposed duration of the agreement, its price, or certain responsibilities of the parties.
- Pay attention to the financial arrangements and due dates - probably, the most essential part of any contract. You have to show the other party your financial standing and indicate convenient payment deadlines.
- State your concerns and questions - you may even list them for the other party to respond. If this is not the first letter you are sending, you will know when to expect the answers. You may also propose certain conditions of the agreement and ask the recipient whether they will be prepared to put them in the contract during the last stage of negotiations. If you have a mediator or some other party that will be involved in the deal, for instance, a financial institution, they must be informed about the questions you raise during the negotiations.
- Thank the recipient for their time and attention and include your contact details to stay in touch. Sign and date the letter. Nowadays, it is easier to send the Letter of Understanding via email - this way, you will always have easier access to all plans, projects, and versions of the contract discussed with the addressee.
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