Letter of Intent Construction Example in Construction in UAE

In the construction industry of the UAE, a Letter of Intent (LOI) plays a critical role in facilitating the initial agreement between contractors, developers, and clients before the finalization of a formal construction contract. The LOI serves as a preliminary commitment, outlining the key terms, scope, and conditions while allowing work to commence under specific terms.

This comprehensive guide explores the purpose, legal implications, structure, and best practices for drafting a Letter of Intent in UAE construction while providing a detailed example that aligns with UAE construction laws and best practices.

Purpose and Importance of a Letter of Intent in UAE Construction

1. Defining the Role of an LOI in Construction Projects

A Letter of Intent is an initial document used to indicate the intention of two parties to enter into a formal contract for construction work. It is commonly used in the UAE construction sector when:

• The main contract is still under negotiation, but urgent preliminary work (such as site preparation, procurement of materials, or mobilization) needs to begin.
• There is a need to secure subcontractors or suppliers before the formal contract is finalized.
• A client wants to signal commitment to a contractor while awaiting final approvals, permits, or legal clearances.

2. Legal Status of a Letter of Intent in UAE Construction

In the UAE legal system, a Letter of Intent is typically not a legally binding contract unless explicitly stated. However, courts in the UAE may consider specific clauses of an LOI as binding, particularly if:

• The LOI includes clear obligations, payment terms, and scope of work.
• The contractor has acted in reliance on the LOI and incurred costs.
• There is performance-based evidence that the agreement was accepted in practice.

3. Key Clauses in a UAE Construction LOI

A well-drafted Letter of Intent should contain the following essential clauses:

• Parties Involved – Clearly define the employer (client) and the contractor.
• Scope of Work – Specify the tasks to be undertaken under the LOI, including mobilization, procurement, or design works.
• Duration and Validity – Define the validity period of the LOI, ensuring there is a clear transition to a formal contract.
• Payment Terms – Outline any advance payments, interim payments, or cost reimbursement terms.
• Termination Clause – Indicate how the LOI can be terminated if the formal contract is not executed.
• Legal Governing Law – The LOI should specify that it is governed by UAE law, particularly Dubai Courts or Abu Dhabi Global Market (ADGM) laws if applicable.

Example of a Letter of Intent for Construction in UAE

[Company Letterhead]

Date: [Insert Date]
To: [Contractor Name]
From: [Employer/Client Name]
Subject: Letter of Intent for Construction Works at [Project Name]

Dear [Contractor’s Name],

We are pleased to issue this Letter of Intent (LOI) to confirm our intent to engage [Contractor’s Name] for the [Project Name] located at [Project Address], subject to the finalization of a formal contract agreement.

1. Scope of Work

Under this LOI, the Contractor shall commence the following works:

• Site mobilization and preliminary setup.
• Procurement of long-lead items as per the preliminary BoQ (Bill of Quantities).
• Execution of enabling works, including excavation and piling.

The scope shall be performed in accordance with UAE construction regulations, Dubai Municipality guidelines, and international quality standards.

2. Duration and Validity

This Letter of Intent shall remain in force for [XX] days from the date of issuance. In the event that a formal contract is not signed within this period, this LOI shall automatically expire unless extended by mutual written agreement.

3. Payment Terms

The Employer agrees to compensate the Contractor as follows:

• An advance payment of AED [XX], to be deducted from the final contract sum.
• Payment shall be made against invoices submitted upon completion of mobilization works.
• Any additional costs incurred beyond the agreed sum shall require prior written approval.

4. Termination Clause

Either party reserves the right to terminate this Letter of Intent with a [XX] days’ written notice should negotiations for the formal contract fail or material breaches occur. In such cases, the contractor shall be reimbursed for approved work completed up to the termination date.

5. Governing Law

This LOI is governed by the laws of the United Arab Emirates, with disputes subject to resolution under the jurisdiction of Dubai Courts or an agreed arbitration tribunal.

6. Conclusion

This Letter of Intent reflects our mutual understanding and should not be construed as a legally binding contract unless otherwise stated. Please acknowledge acceptance of this LOI by signing below.

For and on behalf of [Employer Name]:
[Signature]
[Name]
[Designation]
[Date]

For and on behalf of [Contractor Name]:
[Signature]
[Name]
[Designation]
[Date]

Best Practices for Using a Letter of Intent in UAE Construction

1. Clearly Define the Scope and Payment Terms

Vague LOIs can lead to disputes. Clearly outline the scope, limitations, and costs to avoid ambiguities.

2. Avoid Open-Ended Commitments

Specify a validity period and ensure that the LOI expires if the formal contract is not signed within the stipulated time.

3. Seek Legal Review

Ensure the LOI is reviewed by a UAE-based legal expert specializing in construction contracts to minimize risks.

4. Include a Termination Clause

A strong termination clause helps both parties exit the agreement fairly if necessary.

Conclusion

A Letter of Intent in UAE construction serves as a preliminary agreement, helping developers and contractors initiate work efficiently while awaiting the execution of a formal contract. A well-structured LOI ensures clarity, mitigates risks, and aligns with UAE construction laws. By following best practices and using a legally sound template, stakeholders can secure project commitments without unintended liabilities.

For further insights, refer to this article that we aim to outrank.