What is a letter of demand, and what should you do if you receive one?

What a letter of demand is

A letter of demand is a written request for someone to pay money, perform an obligation or put right a breach of contract. It sets out what the sender says happened, what they want, a deadline, and a warning that legal action may follow if the demand is not met.

Letters of demand are usually sent by a law firm on behalf of the person or business making the claim, although anyone can send one. Receiving one does not mean a court case has started. It is a step taken before going to court.

It is also different from a cease and desist letter, which asks you to stop doing something rather than to do something.

Why it matters even though it is not a court order

A letter of demand does not force you to do anything by itself. It is not a judgment and it has no prescribed form. But it often marks the point at which a dispute becomes serious.

Under the Rules of Court, parties are expected to try to resolve a dispute amicably before going to court, and a claimant is expected to make an offer of amicable resolution first unless there are good reasons not to. A letter of demand is a common way of doing this. If the matter later reaches court, the letter and any reply can be shown as evidence of how each side behaved. Repeatedly ignoring letters can count against you.

What to do when one arrives

Stay calm and work through the letter methodically.

• Read the whole letter and note who sent it, what is claimed, how much, and the deadline.
• Check the claim against your own records. Is the amount right? Have you already paid some of it?
• Gather the relevant documents: contracts, invoices, receipts, messages and proof of payment.
• Be careful with quick informal replies. A message such as 'I'll pay next month' may be read as admitting the debt.
• Reply within the deadline. If you need more time, for example to find a lawyer, ask for it in writing and say when you will reply.

Your options in reply

If you accept the claim, you can reply agreeing to the demand within the deadline. If you dispute it, you can explain why. In many cases the most practical course is to negotiate, for example by proposing a reduced sum or payment in instalments.

Settlement proposals are usually marked 'without prejudice'. In broad terms, this means the proposal cannot later be used in court as an admission against you. The protection only applies to genuine attempts to settle an existing dispute, so simply writing the words on a letter does not guarantee it. If you offer instalments, set out specific amounts and specific dates.

What can happen if you ignore it

If you do not respond, the sender may start a claim in court. If you then fail to respond to the court papers in time, the court may enter a default judgment against you without hearing your side.

A judgment can be enforced, for example by seizing property, taking money from bank accounts or, where the debt is large enough, starting bankruptcy proceedings. Ignoring a letter also means losing the chance to negotiate while things are still informal and less costly.

A letter of demand is not a statutory demand

A statutory demand is a different document. It is a formal demand made under insolvency law by a creditor, and if it is not dealt with in time it can lead to bankruptcy or winding up proceedings. The time limits are strict. If the document you received is a statutory demand, read our guide on statutory demands and act quickly.

Getting advice

Every letter of demand turns on its own facts. A lawyer can read the letter with you, check the claim against your documents, and help you decide whether to pay, dispute or negotiate, and how to word your reply.