A letter of demand is a formal letter asking you to pay money or do something, usually by a deadline, and warning that legal action may follow. It might come from a business, a former business partner, a builder, a landlord or a lawyer acting for someone else.
Is a letter of demand legally binding?
No. A letter of demand is not a court order, and you are not legally required to pay simply because you received one. However, it is often the final step before court or tribunal proceedings start, and how you respond can affect the outcome and the costs.
1. Do not ignore it
Ignoring a demand will not make the claim go away. The other party may start proceedings, and if a claim is not defended, judgment can be entered against you by default. Judgments can lead to enforcement action, such as garnishing wages or seizing assets, and may affect your credit.
2. Check the details
- Who is making the claim, and do they have the right to make it?
- What is the claim based on: a contract, an invoice, a loan or something else?
- Is the amount correct? Are interest and costs properly claimed?
- Is the claim within the limitation period?
- Do you have a defence, or a counter-claim of your own?
3. Gather your documents
Collect contracts, quotes, invoices, emails, text messages, receipts and photos. A clear timeline of what happened will help your lawyer assess the claim quickly.
4. Respond in writing, carefully
Your response may later be shown to a court, so it matters what you say. Avoid admitting liability or making promises before getting advice. Depending on the strength of the claim, your response may dispute it, propose a payment plan, or make a settlement offer. Offers can be made on a "without prejudice" basis so they cannot be used against you as an admission.
5. Consider early resolution
Many disputes are resolved at the letter of demand stage through negotiation or mediation. Litigation is expensive and time-consuming for everyone, and courts expect parties to make genuine attempts to resolve disputes first. Smaller claims may be dealt with in the Victorian Civil and Administrative Tribunal (VCAT) or in the lower courts, where costs are often limited.
Sending a letter of demand
If someone owes you money, a well-drafted letter of demand from a lawyer is often enough to get paid without going to court. It should clearly set out the amount owed, the basis of the claim, a reasonable deadline and the steps you will take if payment is not made.
How we can help
We review demands, advise on your position, prepare a response, negotiate settlements and, where needed, defend or commence proceedings. We also prepare letters of demand for individuals and small businesses who are owed money.
