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In business and employment, different parties get into mutual understanding for involvement in certain business transactions or contracts. The business transaction could involve the supply of goods or services, contract to build a structure or import goods on behalf of a client. To protect the interests of both parties, a letter of agreement is drafted and signed by both parties as a legally binding document covering the terms of service or contract. The letter of agreement template can also be used for employment purposes.

When is a letter of agreement used?

The agreement letter is used when two parties are entering into a contract and may include the following situations:

  • Selling and buying of property
    When a buyer and a seller of the property meet for a deal, there has to be a binding document before the final transfer documents and terms of holding are executed. A sample contract agreement shall be drafted and agreed upon between the parties written and signed and it will remain binding until the full transaction is complete.
  • A supplier and a client
    A client and a supplier can agree that the supplier will supply certain quantities of goods to the client within a given timeframe at a certain price. The two parties will prepare an agreement letter for suppliers and it will contain the terms of supply and the mode of payment.
  • A landlord and agent/tenant
    A building owner may seek the services of an agent and agree that the agent will be collecting rent on behalf of the landlord at certain days of the month and deposit the rent into the bank account of the landlord.
    The two parties will sign a letter of agreement which shall be binding between them and if one defaults, the letter of agreement can be used as evidence of the agreement. In the case of a landlord/tenant agreement, the same process would be applicable.
  • An employer and employee
    An employee seeking employment can agree with an employer that the employee joins the company under certain conditions. To make the word binding, the employer will prepare a contract between two parties and they will both sign before the employment contract begins.

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How do I write a letter of agreement?

In most cases, the letter of agreement is drafted by the party issuing the business opportunity because they are the ones who will benefit from the goods supplied or services offered and at the same time make payments. The issuing party crafts their terms and, in rare cases, negotiate the terms with the recipient before aligning the agreement.

When the letter of agreement is signed by the two parties, it becomes legally binding. Therefore, it must include every detail regarding the contract/business terms because any loopholes in the agreement could render it infective in a court of law.

The letter of agreement can be written following an MoU format for a better flow of the content. When writing a letter of agreement, follow the following simple rules:

Start by preparing the letter of agreement template, which can be downloaded online or designed using a computer and include the following details in the form.

  • Names of the parties
    At the top of the template, type the full names of the parties involved in the transaction and you may choose to include the alias names.
  • Date
    The document date is mandatory because it’s the one that sets the timeframes of the agreement, without which any party might decide to drag the process.
  • Contract information
    The contract information will include the main points because the detailed points shall be discussed in the main body. The contract information may include something like – This contract is entered between party x and y for the supply of 1million polo-shirts for the electoral campaign of….
  • Signatures
    There must be provision for the two parties to sign and include the date of the signature and the names of the signing parties.
  • Body
    In the main body, include every detail as much as possible because they can be used as evidence in a court of law. Include the following details in the main body:
  • List the main points of the agreement
    The main points of the agreement should include the main items to be supplied and could read something like this: – the items covered in this agreement include dairy products, toiletries, stationery, and fabric. Any entity reading the agreement can quickly see the overview of the items included.
  • List specific points of agreement
    Under the specific points, including the specific item under the main points. Example: – dairy is the main point. Under it, include the specifics like yogurt, milk, ghee, butter, etc. under the stationary, the specifics could be sharpeners, rubbers, erasers, exercise books, etc.
  • Others
    Under the others, include other details that could seem necessary for inclusion and could capture things like the square feet of space for rent, the services included for hire, and the terms of sale in the case of the property market.
    To make the main points and the specific points clear, you may opt to write them in a list form or use bullets or even stick to paragraphs as long as any person reading the document can easily understand the details of the agreement.
  • Provisions for jurisdiction
    As we noted above, the contract between two parties is a legally binding document meaning it can be submitted in a court of law as proof of the agreement if one party defaults and the court can use it as the basis for their judgment.
    Therefore, the business agreement template should contain provisions for jurisdiction that could include provisions for trial costs, fees for attorney’s service, costs for servicing notices, and any other related costs. The agreement must indicate who will be responsible for the legal costs in the event the need arises.
  • Provision for amendments
    The parties may need to make amendments to the agreement and it should not, therefore, be a closed document that cannot be amended, but there should be allowances for amendments.
  • Finalizing the agreement
    Once the document is complete, the issuing party involves the other party and once the party reads and feels comfortable with the document contents, the two parties append their signatures and immediately, the document becomes a legally binding document.

What is the difference between a letter of agreement and a contract?

The difference between a letter of agreement and a contract is thin though the two serve two parties and involve business or service delivery.

A letter of agreement is drafted by the involved parties who mutually agree to supply a service or goods and does not involve a lawyer or legal entities to witness. In other words, the two parties sit together and draft or download a sample letter of agreement and discuss the terms before writing them down.

A contract is different because it is a legal agreement between two parties and either drafted by an attorney or the client who then involved an attorney to witness the contract for supply goods or services and the supplier must abide by the contract.

A letter of agreement precedes a formal contract and sets the pace towards the preparation and signing of a contract. In most cases, a letter of agreement will be drafted and signed by the parties to give time to the supplier to start sourcing for the goods/services being sure that the contract will not be given to any other party. A contract should follow the letter of an agreement after some days.

A contract is a final document issued before the commencement of a service or supply of goods. Once the supplier receives and signs the contract document, it’s the final and can start the process of service or goods delivery as per the contract requirements.

The letter of agreement can be revoked mutually by the two parties outside a court of law but a contract is legally binding and cannot be revoked unless through a legal entity. For example; if two parties enter into a three-year marriage contract, no party is bound to break the contract unless through a court.

An agreement letter cannot be used for evidence in a court of law unless signed by the two parties but a contract’s legality stands once the document is signed by the two parties.

The letter of agreement can take effect without the two parties signing but a contract cannot take effect unless the two parties sign. For example, a distributor can agree to supply a contractor with cement without signing the agreement letter and the deal goes on smoothly without any hitches but in the case of a contract, all involved parties must sign. Otherwise, the contract will be deemed null and void.

When signing the letter of agreement, there are no fees payable by any party to make the document binding, but all that the parties need to do is to sign. In the case of a contract, the winning party pays a certain amount of money through their insurance provider or financial institution for the document to be binding.


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