Demand Letter: When and How?
One often hears the term demand letter. But is it always necessary? What should it include? What impact does it have?
A demand letter essentially puts the other party “on notice” to do or not do something. Although it is required only in certain instances provided by law, it is often a step taken before formal legal proceedings and gives the debtor of an obligation the chance to comply.
This takes the form of a written document (letter, e-mail, etc.) mentioning the following points:
·The debtor’s alleged breach;
·What the creditor is demanding; and
·The period of time given to the debtor to comply before the creditor takes legal action.
The period of time given to the debtor in the demand letter should be reasonable and should be appropriate to the specific circumstances of each case. Upon expiration of the time period, if the debtor has not complied with the terms of the demand letter, they will be in default and the creditor may initiate the necessary legal proceedings.
Even in cases where the demand letter is not required, it can be very beneficial to take advantage of this option. In fact, in addition to demonstrating the gravity of the situation, it could prompt the parties to resolve the conflict, thus avoiding having to seek legal redress.
In addition, it is important to keep certain financial considerations in mind. If a creditor decides to sue a debtor without having previously sent a demand letter and the latter complies within a reasonable period of time, they will not be able to be reimbursed for the legal fees they incurred for instituting legal proceedings, as would normally have occurred if they had won a lawsuit or if they had sent a demand letter to the debtor. Finally, if the creditor claims a sum of money from the debtor, the expiration of the time period specified in the demand letter constitutes the starting point for interest calculation. Therefore, it is in the creditor’s interest to send a demand letter to start accruing interest as early as possible.
Although no means of communication is imposed on the creditor for sending the demand letter, it is important to keep in mind that, should the latter take legal action, they will have to prove that their debtor has been put on notice. Consequently, a means of communication that includes an acknowledgement of receipt, such as delivery by a bailiff or registered mail, is highly recommended.
Lastly, the law provides for several situations in which a debtor would automatically be put on notice, notably if the debtor repeatedly refuses or neglects to fulfill their obligation of successive performance. An example is a tenant who does not pay their rent for several months in a row. These specific cases are set out in section 1597 of the Civil Code of Quebec. A contract could also stipulate that a debtor of an obligation be automatically put on notice if an event occurs or if a time period runs out. The creditor could then take advantage of the benefits of a demand letter without having to send one.
Although the concept of the demand letter may seem simple on the surface, it’s important not to overlook the impact of this procedure in a litigation context, as well as the complexities that can arise from it. Don’t hesitate to contact us for additional information or for a formal assessment of your case.
This note contains general legal information and should not be used as a substitute for legal advice from a lawyer who will consider your specific needs.