Five Things You Should Know about ‘Demand Letters’

Demand letters are often the precursor to filing a lawsuit. But they can also be an effective tool in resolving disputes before going to court.

Commonly used by businesses, demand letters are often sent to demand money owed or restitution, but they can also be used to demand specific actions.

Having your attorney draft a demand letter can be a wise move because it gives the recipient a chance to rectify the situation without facing a lawsuit. In general, these letters lay out a brief history of disputes, demand a specific resolution by a specified deadline, provide legal justification for the demand or refer to a contract provision, and state what the sender plans to do if the demand is not met.

While the concept is simple, there are details that can help demand letters be more successful in resolving disputes, as well as protecting your interests.

Here are five things you should know about demand letters.

1. A demand letter shows the other party you’re serious.

Let’s say your business is engaged in a dispute with another company. You’ve made phone calls and sent e-mails. Angry words are exchanged. The other company may think you’re not going to pursue the issue legally. A demand letter makes the possibility of a lawsuit “real” for the other company. Perhaps for the first time, the other party will have to weigh the possible consequences of not complying with the demand.

2. A demand letter is generally seen by the court as a sign of good faith.

The letter shows that the party sending it wants to resolve the issue and isn’t wasting valuable judicial resources. Courts like to see that efforts have been made to settle disputes. Sending a demand letter by certified mail (with return receipt requested) and by regular mail provides proof that you made the effort. In some cases, sending a demand letter is required before going to court.

3. The information in a demand letter may be used against you.

If you do wind up in court, a judge will read the demand letter. Being insulting or threatening can hurt your case. So can demanding an unreasonable amount of money.

The wording of a demand letter is important. Certain issues fall under the Fair Debt Collections Practices Act, or other federal and state laws. You want to ensure any demands made are in compliance with all applicable laws.

You also want to ensure the wording of the letter does not result in a waiver of your rights.

4. Sending a demand letter can save you money and time in the long run.

Although it costs money to have your attorney draft a demand letter and handle a settlement, if it is successful, you’ll save more than if you go to court. Litigation is generally time consuming and expensive. Even if you win, you will likely have to pay legal fees and there is no guarantee that a court award will be collectible.

A demand letter does not have to be written by an attorney but a letter coming from a law firm is generally taken more seriously and will provide the protections listed above.

5. Never ignore a demand letter.

If you receive one, contact your attorney immediately. Some people think if they don’t respond, the sender will go away. This is usually not the case — especially if the other party has retained an attorney.

Respond and try to resolve the issue or you run the risk of going to court. And courts may not look favorably on those who simply ignore demand letters.

This doesn’t mean you have to give into all demands. You can make an affirmative defense, counterclaim, or try to settle the issue for less than the amount demanded.

Institute a policy at your business that certified mail be given to a member of management and given prompt attention. Since there is generally a deadline on demand letters, you want to make sure they are a high priority.

As you can see, demand letters can be an efficient option for settling disputes. They can expedite a successful outcome and avoid costly litigation. Even if you do end up filing a lawsuit, a demand letter shows the court that you reasonably tried to work with the other party to settle the problem.

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