LOIs are the industry's favourite bad habit: "we'll send you an LOI so you can crack on while we sort the contract". They're meant to be a short-term bridge. In real life, they often become the bridge, the road and the final destination.
The key risk: you think you're "not really under contract yet", but the court later says your LOI + your behaviour was the contract -- so when you walk off or argue over money, you're already in breach.
1. What a letter of intent is supposed to do
On a good day, an LOI is just a short document that lets:
- the contractor start early tasks (design, ordering long-lead items, prelims, maybe some early works); and
- the client cap their liability while the full JCT/NEC contract is being finalised.
Used properly, it should:
- set a clear scope of the early works
- set a financial cap (e.g. "up to £X")
- set a time limit (e.g. expiry date)
- point to the intended form of main contract
- say what happens if the full contract is never signed.
It's a temporary scaffold, not a permanent home.
2. When an LOI is likely to be binding
Courts look at contract formation basics: agreement on key terms, intention to create legal relations, and consideration.
In practice, an LOI is often treated as a binding interim contract where:
- It clearly authorises you to start work and you actually do;
- It sets out what you'll do, how you'll be paid and often points to standard terms (JCT/NEC etc.);
- Both sides behave as if there is a contract (certifying, paying, following procedures).
The classic warning cases (like RTS Flexible Systems v Molkerei Muller and others) show that even with "subject to contract" wording, if you both crack on for months using the draft terms, the court may say: you waived that caveat by conduct -- you are bound.
So in most real-world construction LOI situations, if you've started work "under" the LOI, you should assume you're bound by some contract -- at least for what's covered by that LOI.
3. When an LOI is less likely to bind you
On the other side, some LOIs truly are just "comfort letters" -- statements of intent, not contracts.
They're more likely to be non-binding if:
- They are very vague -- no clear scope, no price mechanism, no dates.
- They just say "we hope to enter into a contract" but don't authorise work.
- They're clearly "subject to contract" and you haven't started work or drawn down on them yet.
- Key terms are still under negotiation and nothing material has been done on site.
Even then, if you later act as if there's a deal (start work, submit applications, get paid), the court can decide that a contract was formed despite the cautious wording.
Bottom line: "non-binding" on the letterhead doesn't protect you if your actions tell a different story.
4. The real risks with LOIs on live projects
Why this matters for you on site:
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Walking off -- if a court says the LOI is a binding (interim or full) contract and you down tools because "we never signed the big contract", that may be treated as repudiation and you're the one in breach.
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Caps and scope -- a well-drafted LOI will cap the employer's liability (say £250k, like in Diamond Build v Clapham Park Homes). If no full contract ever gets signed, that cap may be all you get, even if you did more work thinking the full contract would follow.
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Gaps and risk -- if the LOI doesn't clearly import the full standard terms, you can end up with a half-baked contract: payment and scope covered, but fuzzy time, risk and LD positions. Courts then have to piece it together from draft contracts and conduct, which is always risky.
So "we're only on an LOI" is not a get-out-of-jail card -- it's more often a sign that you're trading on a weaker contract than you'd like.
5. How to protect yourself when an LOI is on the table
The question isn't "is an LOI safe?" -- it's "how do we make this specific LOI less dangerous?"
When you're asked to start on an LOI:
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Insist on clear scope and cap -- exactly what works you're authorised to do, and a firm financial cap. Don't start the whole job on a vague LOI for "prelims and enabling works".
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Tie it to a form of contract -- LOI should say the parties intend to work under [JCT/NEC version X] and that those conditions (or key bits) apply to these early works so you're not in legal no-man's-land.
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Put an expiry date on it -- time-limit the LOI (e.g. "valid until [date] or until main contract executed"), and don't let the job drift for months on an "expired" LOI without either renewing or signing the real thing.
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Watch what you actually do -- if the LOI was meant for early works only, don't roll into full construction without getting the main contract sorted or at least extending the LOI terms properly.
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Assume you're contractually bound for whatever you do under the LOI, and behave accordingly -- follow notice procedures, keep records, and don't "walk" without advice just because the big contract isn't signed.
That way, if you end up in front of a judge, they see a short, clear interim contract rather than a car crash of mixed messages.
Letter of intent (LOI) quick-scan
Before you start work under an LOI, check:
- Scope is clear: it spells out exactly what early works you're authorised to do (design, surveys, enabling), not "start the project" in vague terms.
- Cap is clear: there's a hard £ limit on what you can spend/claim under the LOI, and you know when you'll hit it.
- Time limit is clear: the LOI has an expiry date or trigger (e.g. main contract signed), not "open-ended until further notice".
- Intended contract is named: it points to JCT/NEC or a specific form and, ideally, says those terms apply so far as possible to the LOI works.
- You're not being asked to do full main works under a skinny LOI -- if the scope looks like the whole job, push for the main contract instead.
- Everyone knows it's not a free trial: you assume you're contractually bound for any work done under the LOI and behave accordingly (notices, records, no walking off without advice).
If you can't tick most of that, you're being asked to take on main-contract risk on half-baked paperwork -- time to push back or slow down until it's cleaned up.
Disclaimer: SiteKiln gives you plain-English information, not legal advice. Talk to a solicitor before making big decisions on live disputes.
What to do next
- If you are working under an LOI right now, check whether it has a clear scope, financial cap, time limit and reference to the intended main contract form.
- Assume you are contractually bound for anything you do under the LOI and behave accordingly -- follow notice procedures and keep records.
- Do not let the job drift for months on an expired or vague LOI without either renewing it or signing the main contract.
- If the scope of work under the LOI looks like the whole job, push hard for the main contract to be signed before you go further.
- Keep a record of all costs incurred under the LOI so you can demonstrate your position if the main contract never materialises.
Sources
- Housing Grants, Construction and Regeneration Act 1996 -- https://www.legislation.gov.uk/ukpga/1996/53/contents
- RTS Flexible Systems Ltd v Molkerei Alois Muller GmbH [2010] UKSC 14 (Supreme Court on LOI and contract formation)
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