Using Demand Letters To Get Paid Faster
What we’ll cover:
- Keys to composing a professional and effective demand letter
- Different types and uses of demand letters
- What happens when the recipient of your letter doesn’t comply?
All right. Well, it looks like we have a bunch of participants in the room, so I wanted to thank everyone for coming today. My name is Seth bloom. I’m senior director of attorney services at level-set and we are thrilled to be putting on another webinar today on construction payment. Uh today’s is demand letters and how you can get paid faster by Rashab Agni from the Chapman law firm in Austin, Texas. Uh, if you have any questions during the webinar, please just type them in and we’ll try to get them answered. And afterwards we’ll save a few minutes time to ask for shop some more questions. So Rochelle, thank you so much for doing this today. Uh, we look forward to the webinar. Thanks. So, uh, again, my name is Rashad Agni. I am in Austin. Now I work with the Chapman firm and today’s presentation is on demand letters and how you can get paid faster, um, brief presentation on demand letters. Um, and, uh, I hope after the presentation is over, you’ll have an idea of how they can be used effectively because we often see them used. Um, sometimes
Fruitlessly so let’s, let’s get into it.
So what is a demand letter? Demand letter is a letter use to advocate a position. And as the name implies, it’s something you’re demanding. So you’re really convincing the recipient of the letter to do or not do something. And the demand letter is of course going to be stronger if it’s based on a well-written contract and aglow and contract among other things is going to identify each parties, rights and obligations. So for example, a demand letter, um, can be based on a contract provision that guarantees payment to take place within X days of an invoice payments not received. Then that clause is triggered of the contract. If that contract doesn’t exist, then it’s much harder to convince somebody to do something if there’s no basis. So like I just pointed out one of the main reasons you can send a demand letters to demand the payment of money that’s owed to you. You can demand the performance or non-performance. For example, you can demand that a subcontractor perform. If you’re a contractor or you can demand that a subcontractor stop performing,
You can also use a demand letter stats to satisfy a statutory requirement in Texas. There are a few statutes would require a for example, homeowner to send a letter to a contractor, asking them to come perform repairs. One, we’ll get into this later. But if, if that letters and insent, then you lose your rights to file a lawsuit. And that letter you’re asking them to do something which makes a demand letter, um, demand letters should be sent sooner than later sometimes. And this is in particular, um, to lien rights, for example, in Texas, if you do not send your letter in a timely fashion, you lose your right to collect payment.
Here I have a few examples and these are based on some cases that we’ve run across. Um, recently. So first example, there is a demand for payment for subcontractor performs work in zone payment. The subcontractor should send a demand letter demanding timely payment and in Texas. And if you have lien rights, this will also preserve lean deadlines. And example is if a supplier has provided materials or specially fabricated some materials which have been accepted by a subcontractor or a contractor and payment has not been made, you want to make a demand citing those statutes and exercising your lien rights to collect payment. Likewise, for performance for subcontractors stopped performing on a project. Contractors should send a letter demanding that the subcontractor performance of that contract before moving to other remedies, essentially, you don’t want to jump from zero to 60. You want to give them an opportunity, whoever it is, whoever the recipient is to do the right thing. And like I said, a few moments ago, a demand letter can be a cause a condition precedent to litigation. It’s a box you have to check if you want to continue with litigation. So for example, under Texas law, we have what’s called a, the residential construction litigation act. And under that act, it contractors work on a residential project. If it’s deficient, the homeowner’s required to send a notice under that act failure, to send a demand and, and identify the repairs need to be, uh, uh, conducted,
Create a problem for you. So sending the demand letter checks that box and allows you to proceed with litigation if necessary.
So the big question is who can send a demand letter. It really depends on the message you want to send. You don’t need a lawyer. Anybody can send a demand letter, but if you choose to retain a lawyer to draft and send a demand letter on your behalf, it sends a message like anything else. If, if you get a call from a lawyer or a letter from a lawyer, you’re, you’re a little more concerned than you would be. If it was from somebody else, it may imply that there is something to litigate and it implies that there should be a higher level of scrutiny and concern.
That is one key considerations. And any demand letter is if it comes from a contractor or it comes from the business person, it’s, it’s more of a business person to business person dispute and, and presents an air of let’s resolve the dispute that we have outside of lawyers and outside of the courtroom. And sending a letter business person to business person does not immediately cause the recipient to think I might get sued over this. So I have more cause to work with this person to resolve the dispute.
So I have, um, put together here, the, the key parts, what I think are the key parts of the domain. And I think that there’s four key parts and, um, we’ll walk through each of them and the components that comprise them. So the first part is, is the introduction. Um, in my demand letters, I like to explain five key things who we are and we being the demanding party, um, and also who the author is if it’s not the domain of bar. So if it’s a law firm who law firm is and what their relationship to the demanding party, who the demanding party is the demanding party, his relationship with the recipient, for example, uh, if the demanding party is a subcontractor, that’s owed payment from the contractor, that relationship is one, it is subcontractor to contractor relationship. Uh, the introduction should continue to preview of what we’ll get to, and we’re like to call the want or the ask and a brief background of the claim and dispute.
So on the common, um, example of subcontractors payment or from a contractor, uh, the background is that contractor, you hired me subcontractor to perform X scope of work. I’ve performed it. And under the payment terms of our contract, I’m next major section is the wand. What does the demanding party want? It’s a demand letter, you’re demanding something. And what you are asking for should be very, very clear. So for example, if you’re demanding payment, how much payment, how is that calculated? And are there any requirements that compelled the receiving party to pay you? And this goes back to what we talked about earlier about having a good contract that governs the terms in that has great terms and provisions that will allow you to rely on that contract in your demand. So here and same for performance, it’s under the contract. You promise to pay me and you have not paid me.
Therefore, my demand is well supported without support. You’re really looking at something that’s more of a request or an ask and I’ll get to this on the next slide and a request or an ask. It does not have the same. Um, let’s say teeth that a demand letter should carry. And that brings us to our third section, which is the T excuse the tighter on the side, there was messing with PowerPoint and found that they have, um, some tools to help those that aren’t very good at PowerPoints like myself, but what happens if a recipient does not comply with their demand and that’s where the teeth come in a demand letter, you’re at your demand. You have the party do something that you want them to do. And if they don’t, this is what will happen generally. But what you’ll find in a letter is litigation the threat of litigation, additional monetary penalties, for example, interest on amounts owed or the threat of stopping performance.
The key consideration in deciding which one of those three categories, if you will, um, that you want to include in your letter or what the demanding parties willing to do versus what the recipient perceives the client or the demanding party is willing to do. And what I mean by that is if the demanding party is willing to file a lawsuit great. But if you threatened to file a lawsuit and the recipient, let’s say it’s a contractor knows that it’s a hollow threat. They may not take your demand letter as seriously as you would want them to. So it’s a balancing of your interests. It’s what w what are you willing to do to obtain what you are demanding and what does the recipient think you will do?
The next major part, and the final part is the deadline. You want to impose a reasonable deadline for the recipient to investigate and respond to your demand letter. And oftentimes this means reviewing the supporting documentation, making sure what you’re alleging is true and determining whether your demand has merit. If based on the contract, it’s already, it’s already up there in terms of the merits. Usually about 10 days is what we find to be reasonable in a demand load. It gives enough time for it to be mailed out, uh, to be received and reviewed by the right people and the right people to get access to the right documents. And sometimes we see this is typically attorney to attorney, but we’ll get a request for more time to review or respond to a letter. And that can sometimes in and of itself trigger resolution it’s Hey, look, you’ve sent me the demand. I just don’t what you want. Here’s what’s holding my end up. Can we say,
And most importantly, and this goes back to, what are you willing to do? Is it’s like disciplining a child. You want to follow through with what you said you were going to do. If you said, I’m going to charge you more money. You don’t want to go back and say, well, hold on, I’m gonna give you one more demand letter, one more chance. You want to do what you’re going to do, charge them more money. If it’s, I’m going to file a lawsuit or retain a lawyer, have that lawyer reach out and indicate that you are taking the steps to do what you said you’re going to do.
And in doing so, you’ll maintain your credibility. And this will again, go back to that. What mentioned a few moments ago about what is the recipient going to think you are going to do versus what you’re going to do? If you are a good contractor, good subcontractor, good supplier that does good work, and you want to get paid on time. You want to maintain your credibility and you send a demand letter that recipients should know that you are going to do what you said you’re going to do. And if that means you’re going to draft a demand letter, send them a, and that demand letter say that I’m going to file suit. If you do not pay me the money that is owed within a timely fashion, they will believe you.
Um, and if I can circle back to the key parts here, it’s those four things that make a good demand letter, the introduction, who we are, what we want the teeth that says, if you don’t do what we are demanding, then here’s what will happen. And then a good timeframe that will allow that receiving party to comply with your demand. And as we talked about a little bit earlier is it’s used to advocate a position. So you want to make sure that your demand letter is meritorious. You don’t want to demand something that you’re not entitled to. Although you can try, it’s not going to get you very far. And one comment I have about the section that I called the teeth is if without teeth, without a real promise of doing something, a demand letter, it’s more of a request. It’s an ask. And if there’s a good relationship between you and the party you’re sending this letter to, then you can sometimes get there and ask her a request. Can sometimes get you the relief you’re looking for. However, more often than not a request is not going to get you paid as fast as you want as a good re it’s a good demand based on a contract or other provisions or other agreements you have with the person that you’re sending that demand letter to that’s a short presentation on demand letters, but it really depends on what you’re sending it for, what you want and, and who you’re sending it to the relationship does change.
Do we, uh, sorry to interrupt, but are there any questions out there? Uh, I know everyone’s been pretty quiet. Uh, Rashab normally charges hundreds of dollars an hour. So here’s a free opportunity to get a, uh, uh, an attorney to answer some questions. Are there, give everyone a minute, um, to ask you
Through this a little bit set here, there’s a lot, there’s a lot that goes to demand letters, but a lot of it’s based on unknowns that really depend on the situation. So if you have any questions, please feel free. All
Right. We’ll give everyone a second. And, uh, I see all your information’s up there. Wait, something’s coming through now. Um, here we go from Megan, she asks what is a reasonable amount of time on a contract for a pay when paid clause?
Um, that’s where you run into those issues all the time. Because a pay when paid clause has to
That before a demand letter would be sent
Just accord demand letter. Okay. Um, uh, trouble with pay when paid clause, it’s similar to a pay if paid clause, which aren’t really well accepted in Texas is that the, the party that’s waiting for payment will not know until the upstream party that’s waiting to be paid when they’re going to be paid. So what, what I often suggest is not sending a demand letter, but just sending a nudge or a letter saying, we’ve, we’ve performed our work. We understand that our contract has a pay when paid clause. We respectfully request an update, a status update. And what you’re doing is you’re building your track record for a later demand letter. So say you hear, you know, at some point that they’ve been paid or, you know, it’s been 60 days and they should have been paid. You can send a demand letter saying, look, I’ve seen you three requests for updates. You didn’t respond to any of them, or you did respond to some of them, but you still didn’t pay me. Like you said, you would, that will help build the track record. You need to support your demand letter much like the contract. Does that help answer your question, Megan,
We’ll see if Megan responds. And is there anyone else out there with any additional questions? Sure. We’ll give everyone about another minute or so to see if any other questions come through or, or if that cleared it up for Megan. Otherwise we’ll conclude the webinar, but, uh, let’s give it a minute or so.
Michelle, do you want to tell us a little bit about some of the projects you work on, uh, in your practice as far as construction goes?
Sure. Uh, even if, when we represent, um, uh, contractors, owners, subcontractors suppliers, um, in litigation and on transactional matters in and around Texas, I also engage in some business and commercial litigation. Um, but we we’ve, we counsel folks on projects of all sizes, all the time, million dollar public projects to pouring a cement foundation at a local gas station. Um, we, we do it all. Um, and we do demand letters for all of it. And that’s really where it all starts.
Well, Megan did add some stuff to this, and she’s given you a little bit of a hypothet so we can work through that. Okay. She said, thank you. It does help. Uh, we will review the contract and see what we can find out. We have a contractor that has held an invoice since August saying that they haven’t been paid for October, and that’s when our invoice was submitted to them. Um, so she was, she was saying that this is in fact helpful. So
Go ahead. You know, and maybe one thing you can do, and it really depends on, on, on your relationship with the other parties is sending a letter to, uh, the owner, sending a letter to the contractor, including the owner and saying, Hey, look, we set this invoice on Octa in October, we’ve been waiting for payment. They say that they haven’t been paid. Is that true? And you’re just, as you’re, you’re trying to collect and ensure your right to payment. And I don’t think there’s anything wrong with sending a letter to the contractor or the owner confirming what they’re saying is true.
All right. Well, just a, we had another person ask if these slides will be available and they will be available and so will the entire presentation. Um, so if there’s any additional questions that you have, you can always go to the, um, level-set ex uh, excuse me, attorney network, uh, there’s Q and A’s. You can ask, uh, Rashab or any other lawyer, uh, on that you can contact Rashab directly, or you can always post on the Texas section. Uh, if you have any legal questions that can be answered, um, all of our shops information is here. So feel free to call him about any future legal construction issues. And again, my name is Seth bloom. I’m a senior director of, uh, attorney services at level-set and Russia. We just wanted to thank you so much today, uh, for all of your time, which I know is precious, especially during this time, uh, to do this for us. So thank you very much. We look forward to more, uh, presentations in the future. Sure. Thank you. All right. Bye-bye. Thank you.