Received a Demand Letter? Here’s What You Need to Know

Receiving a demand letter can be an overwhelming experience. Whether it comes from a disgruntled business partner, an ex-employee, a debt collector, or a lawyer/paralegal representing an individual or corporation, it often carries legal weight and an implied threat of further action. You might feel stressed, anxious, or even defensive—all of which are completely natural reactions. However, ignoring the letter or reacting impulsively can lead to serious consequences.

This guide will help you understand what a demand letter is, how to assess its contents, what legal options you have, and how to respond effectively. Whether you choose to negotiate, refute the claims, or prepare for legal proceedings, this article will ensure you are informed, empowered, and ready to take the best course of action.

What Is a Demand Letter?

A demand letter is a formal document sent by one party to another, outlining a specific grievance or legal claim. Typically, the letter demands some form of remedy—such as payment of money owed, compliance with a contractual obligation, or ceasing a particular action. The letter is often sent before legal proceedings are initiated, providing an opportunity to resolve the issue outside of court.

Key Components of a Demand Letter

• The sender’s details (usually a lawyer/paralegal or the individual making the claim)

• A summary of the issue (what the dispute is about)

• The legal basis for the claim (a reference to a contract, law, or legal principle)

• The demands (payment, compliance, or a corrective action)

• A deadline for response (often a set number of days)

• A warning of further legal action if the demands are not met

Demand letters are common in various legal disputes, including unpaid debts, breach of contract, property disputes, employment issues, and defamation claims.

What to Do When You Receive a Demand Letter

Step 1: Stay Calm and Read the Letter Carefully

Your first instinct might be to panic, ignore the letter, or react emotionally. Avoid these knee-jerk reactions. Instead, take a deep breath and read the letter thoroughly.

Look for key details:

• Who sent the letter?

• What are they alleging?

• What do they want you to do?

• What is their legal basis?

• What is the deadline to respond?

Understanding these aspects will help you assess the seriousness of the situation and decide how to proceed.

Step 2: Do Not Ignore It

Ignoring a demand letter can be a huge mistake. If the sender does not receive a response, they may assume you are unwilling to negotiate or that you are in the wrong. This can lead them to take the next step—filing a lawsuit. Even if you believe the claim is baseless, acknowledging the letter and considering your response is always the best course of action.

Step 3: Gather Relevant Documents and Evidence

Before responding, collect all documentation related to the issue. This may include:

• Contracts and agreements

• Emails and correspondence

• Receipts and financial records

• Screenshots (for online disputes)

• Witness statements

Having these materials ready will help you evaluate whether the demand is legitimate and build your response accordingly.

Step 4: Consider Legal Advice

While some demand letters can be addressed without legal representation, consulting a legal professional is often a smart move—especially if:

• The demand involves a large sum of money

• There are serious legal consequences

• The matter is complex (e.g., business disputes, defamation, property issues)

• You are unsure about how to respond

A legal professional can assess the letter, determine the best response strategy, and even draft a reply on your behalf.

Step 5: Evaluate Your Options

At this stage, you have several potential paths forward:

1. Comply with the Demand
   If the claim is valid and the demand is reasonable, you may decide to comply. This can resolve the dispute quickly and avoid further legal complications.

2. Negotiate a Settlement
   If you believe the demand is too high or unfair, you can negotiate a lower settlement or alternative resolution. Negotiation is often preferable to litigation, which can be costly and time-consuming.

3. Refute the Claim
   If you believe the claim is false or exaggerated, you can respond with evidence refuting it. Your response should be professional, factual, and legally sound.

4. Ignore the Letter
   While this is generally not advisable, in rare cases where the letter is clearly frivolous or baseless, you may choose not to respond. However, consult a legal professional before taking this approach, as ignoring the letter could escalate the dispute.

5. Prepare for Litigation
   If you anticipate the sender will file a lawsuit, start preparing by gathering evidence, consulting legal representation, and considering pre-emptive legal strategies.

How to Draft a Response to a Demand Letter

A well-crafted response can help you avoid legal trouble while protecting your interests. Here are some tips:

• Be Professional: Avoid emotional or aggressive language.

• Acknowledge Receipt: Confirm that you have received the letter.

• State Your Position: Clearly explain whether you agree, disagree, or need further clarification.

• Provide Evidence: Attach relevant documents to support your case.

• Offer a Counter-Settlement (if applicable): If negotiating, propose a fair resolution.

• Set Your Own Deadline: Give a reasonable timeframe for further discussions or actions.

Ontario-Specific Considerations

If you're in Ontario, Canada, you should be aware of some legal specifics:

• Limitation Periods: Ontario’s Limitations Act sets deadlines for legal claims. If the claim is beyond the limitation period, it may not be enforceable.

• Small Claims Court: If the demand is under $35,000, the matter may proceed to Small Claims Court, which is faster and less expensive than superior court proceedings.

• Alternative Dispute Resolution (ADR): Ontario encourages ADR methods like mediation and arbitration to resolve disputes outside of court.

Consult a legal professional for tailored legal advice.

Receiving a demand letter can be stressful, but with the right approach, you can navigate the situation effectively. Stay calm, gather evidence, seek legal advice if necessary, and choose the best course of action based on the circumstances. The key is to respond strategically rather than react emotionally.

If you need help with drafting or responding to a demand letter, contact Oduraa Legal Services today!