What Is a Demand Letter?

A demand letter is a formal, professional document sent by one party to another requesting payment or other action to right a wrong. The recipient may be in financial default, may have breached a contract, or may not have followed through with an obligation.

Demand letters are usually written by a lawyer and are frequently used in business before the aggrieved party takes legal action against the recipient. They are not, however, a requirement to take the recipient to court.

Key Takeaways

  • A demand letter is a formal, professional document sent by one party to another requesting payment or other action to right a wrong.
  • The letter requests some form of restitution to the aggrieved party and is often preceded by amicable attempts to remind a recipient of the obligation.
  • Most demand letters are written by lawyers.
  • Demand letters outline the damages, the demand for restitution, a deadline, as well as any consequences if the conditions are not met.

Understanding Demand Letters

As the name implies, a demand letter is a document that requests some form of restitution from the recipient to the aggrieved party. A demand letter is often preceded by phone calls, emails, and other more amicable attempts to remind a debtor or other recipient of the obligation. As noted above, demand letters are generally written by a lawyer on behalf of an individual or corporation, although the sender may sometimes write it themselves.

In most cases, a demand letter is usually sent as a courtesy or reminder. It is usually forwarded to the recipient by certified mail, giving them a final chance to rectify the situation—financial or otherwise. Most demand letters contain directions on how to make restitution, including payment details and deadlines.

The recipient may follow through with the writer's request by fulfilling the conditions outlined in the letter. The recipient may, on the other hand, respond with their own letter denying the claims. The recipient may also choose to ignore the demand letter. In the last two cases, the sender may take legal action, bringing a lawsuit in court to remedy the situation.

The letter shows the sender is serious about coming to a resolution. Although they are not legally required, demand letters are frequently used in contract law, tort law, and commercial law cases. Most courts consider the recipient sending a demand letter as a measure of good faith to try to come to a resolution.

What's in a Demand Letter?

Demand letters are documents you can write yourself. However, most people choose to pay a lawyer to draft up the demand. The letter usually opens up with the purpose of the letter, a description of the damages, followed by the demand for restitution. Most demand letters will give the recipient a certain amount of time to resolve the dispute, along with any consequences if the conditions are not met.

There is no prescribed length for a demand letter, though a shorter letter is ideally better. It should only be long enough to clarify your intent. If it goes beyond that, it begins to hurt the letter's effectiveness. A straightforward letter demonstrates seriousness to a legal dispute. If the recipient doesn't respond and you end up going to court, a court clerk and judge may look favorably on the conciseness of a demand letter.

Although there is no set length for a demand letter, a shorter one is generally better.

Legal Considerations for Demand Letters

In the U.S., some demand letters may fall under the purview of the Fair Debt Collection Practices Act (FDCPA) or may be subject to state laws. These laws outline rules which must be followed in debt collection and allows a debtor to seek damages if these rules are not followed. Legal counsel is often involved in attempting to collect seriously overdue debts.

It's not uncommon for shady pseudo-collections agencies to send seemingly viable demand letters requesting immediate payment, even though no letter was appropriate. These types of schemes often graduate to outright scams, where unsuspecting consumer credit obligors send payment in error.

Demand Letters in Personal Injury

In personal injury claims, the settlement negotiation process begins with the victim submitting a demand letter to the insurance companies. The purpose of the demand letter is to present facts about the incident to persuade the insurance companies to provide adequate compensation. A typical demand letter may be structured as follows:

  • Description of the accident
  • Discussion of accident liability
  • Description of personal injuries
  • Description of medical treatments
  • List of medical bills/lost income statements
  • Injury settlement demand