Key Takeaways

  • An agreement letter is a formal way to outline mutual terms between two or more parties.
  • Use clear language and include all key terms: purpose, payment, timeline, and obligations.
  • Including a statement of binding intent and signatures helps ensure enforceability.
  • Agreement letters can serve as alternatives to formal contracts, especially for simple transactions.
  • Always consider whether you want the letter to be legally binding or nonbinding—and state that clearly.
  • You can draft the letter yourself or consult an attorney, especially for complex agreements.

How to Write an Agreement

How to write an agreement letter is a simple set of steps. But before you begin writing the agreement letter, be sure that both you and the other party know what you are agreeing to.

You should meet and discuss, whether in person or on the phone the terms of the agreement. Make sure to take clear and detailed notes.

When to Use an Agreement Letter

Agreement letters are commonly used when a full contract is unnecessary but a written record of the arrangement is still beneficial. These letters are often suitable for:

  • Freelance or gig-based work agreements
  • Loan or repayment arrangements between individuals
  • Joint ventures or informal partnerships
  • Holding agreements (e.g., a deposit on a product or service)
  • Business collaborations where both parties agree on essential terms but want a simplified format

They’re especially helpful when the parties need clarity and protection without the complexity or cost of formal legal contracts.

Negotiation

If you are unhappy or anxious about some of the terms, you can try to negotiate with the other party before finishing the agreement. However, successful negotiation usually includes giving something away in order to get something you want.

Feel free to debate specific provisions in the contract. Offer to add a provision that you know the other party would like if they would be willing to remove a provision that you are unhappy with.

Drafting

An agreement letter is usually less formal than a contract. However, it still needs to be sufficiently definite so that both parties fully understand what is has been agreed to.

Include a specific outlining of the contract schedule and the means of payment in the contract. Do the parties want to pay/receive payment in one lump sum? Would you prefer a down payment with monthly installments? Make sure to specify. And if payments need to be in a particular medium – cash, check, or credit card – specify that as well.

Before writing the agreement letter, use the notes you took during your meeting/negotiation, and outline the agreement. Try to organize the information in a manner that makes sense.

The outline can be as simple as:

  1. Nature of work
  2. Deadlines
  3. Payment details (price, means of payment, schedule)
  4. Beginning and end dates

Legal Elements That Make an Agreement Letter Binding

While agreement letters are generally less formal, they can be legally binding if they include the following elements:

  1. Clear Offer and Acceptance: Both parties must agree to the same terms.
  2. Consideration: There must be something of value exchanged (e.g., services, money, goods).
  3. Intent to Be Bound: A statement such as “This agreement is binding upon the parties” clarifies legal enforceability.
  4. Defined Terms: Include dates, responsibilities, payment terms, and other key provisions.
  5. Signatures: Both parties should sign and date the letter, ideally with a statement like, “By signing below, we agree to the terms set forth.”

If either party does not intend for the letter to be legally binding, that intent should be made explicit, using language such as, "This letter does not constitute a legally binding agreement."

Typing the Letter

Once you have your outline, type your agreement letter. Make sure it is readable in both size and font. At the very top of the page, in the center, include “Letter of Agreement” in bold. Include five or six lines of blank space at the top so that you can use letterhead when you print it, if you have it.

The letter should read like a regular business letter.

Make sure to include

  1. The date
  2. The other person’s address (below your address if you are not using letterhead)
  3. If you are not using letterhead, include your address below the title.
  4. “Dear Ms. Jones” or “Dear Mr. Smith”
  5. Signatures of both parties (including the typed names below each signature for clarity)

Structure

The first paragraph should state why you are writing the agreement letter and the purpose statement.

In as much detail as possible:

  1. Outline the tasks to be performed
  2. Explain any deadlines or timelines
    • ex: state when rough drafts are due
  3. Describe how revisions or edits are handled including, but not limited to the number of revisions allowed/expected
  4. Include how much you will be paid
  5. When the payment(s) must be made
    • How much must be paid upfront, if there is a down payment required
  6. Include a cancellation clause
  7. Explain how much a party owes for partial work if they want or need to cancel before completion
  8. Specify the term of the contract: start and end dates
  9. State what law governs in the event of a dispute
  10. Add a non-disclosure or confidentiality clause if necessary
    • Discuss what these clauses apply to: intellectual property, trade secrets, patent, other information, or all information
  11. Specify whether the other party must return the information or property when the contract is over
  12. If this is the final agreement that includes all the things agreed to, include a merger clause saying so

Optional Clauses to Consider

Depending on the situation, your agreement letter may benefit from additional clauses. These include:

  • Dispute Resolution Clause: Specifies how disagreements will be handled (e.g., mediation, arbitration).
  • Non-Compete Clause: Prevents one party from entering into direct competition.
  • Force Majeure Clause: Excuses parties from obligations if extraordinary events (natural disasters, pandemics) prevent performance.
  • Governing Law Clause: Identifies which state's laws govern the agreement.
  • Assignment Clause: States whether rights or obligations can be transferred to another party.
  • Termination Clause: Describes how and under what conditions the agreement may be ended early.

These additions help minimize risks and protect both parties’ interests, especially in longer-term or high-value arrangements.

Send for Review

Send a copy to the other party for review. Give them about a week to review, object to anything in the agreement, return with corrections, or return with signature(s). You can then type the final letter. If you disagree with their objections, you may need to sit down with them again to come to an agreement. Do not sign the letter until everyone agrees to all provisions as written.

Signing and Recordkeeping

Once the final version is agreed upon, both parties should:

  • Sign and date the letter (digital signatures are acceptable in many jurisdictions)
  • Initial each page if desired, especially for longer letters
  • Keep a signed copy for their records

It's best practice for each party to have a copy bearing both original signatures. If using email to send and sign, include a statement acknowledging receipt and acceptance of the agreement terms.

Common Mistakes to Avoid

Avoid these frequent issues when writing an agreement letter:

  • Vague Language: Be as specific as possible—ambiguous terms may lead to disputes.
  • Missing Key Details: Exclude important elements like payment terms or deadlines at your own risk.
  • Not Specifying Whether the Agreement Is Binding: Courts may enforce unintended agreements if your intent isn't clear.
  • Forgetting to Sign or Date: Without signatures, the agreement may lack legal force.
  • Unclear Responsibilities: Define who is responsible for what to avoid misunderstandings.

Frequently Asked Questions

  1. What is the difference between an agreement letter and a contract?
    An agreement letter is usually shorter and written in letter format, but it can still be legally binding if it meets certain criteria. Contracts are typically more formal and comprehensive.
  2. Can an agreement letter be legally binding?
    Yes, if it includes offer and acceptance, consideration, mutual intent to be bound, and is signed by the parties.
  3. Do I need a lawyer to write an agreement letter?
    Not necessarily. For straightforward matters, you can draft it yourself. For complex or high-stakes agreements, consulting an attorney is wise.
  4. What happens if one party breaks the agreement letter?
    If the letter is legally binding, the non-breaching party may seek legal remedies such as damages or specific performance.
  5. Can I use templates for writing an agreement letter?
    Yes, templates can be a helpful starting point, but they should be customized to reflect the specific terms of your agreement.

If you need help with how to write an agreement letter, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.