Letter of Understanding

A letter of understanding, also known as LOU, is the initial step before the formation of a detailed contract. If you have reached an agreement with another party, you generally write a letter of understanding, which comprises of all terms and conditions of the contract.

In this guide we will show you how to write a letter of understanding and provide you with samples and a template to write your own custom letter in no time.

Tips for Writing a Letter of Understanding

  • Keep the language formal and be concise
  • Provide a summary of the expected contract
  • State all the major terms of the agreement as clearly as possible
  • State full details of all parties involved in the contract
  • Sign the letter in the end


  • 1

    Sample of a Letter of Understanding #1

    Allan Parker,
    367 Fountain Avenue,
    Birmingham- 7198
    August 10, 2012

    Peter Thomas,
    47 Hill View Society,
    Birmingham- 5813.

    Subject: Letter of understanding and agreement to rent the apartment

    Dear Mr. Thomas,

    First of all, I would like to thank you for agreeing to rent me the upper portion of the property at 47 Hill View Society. As per my understanding of the terms of our agreement, I will have to pay $600 every month starting September 2012, along with a first month security deposit of $600, which will be refundable upon the termination of my lease.

    Moreover, you will have to provide me with a 3-month notice in case you want me to vacate the premises, and I will provide you with a 1-month notice if I intend not to renew my lease.

    All payments will be made in cash, no later than the 10th of every month.

    If you have any reservations regarding these terms, please inform me before the 25th of August so that we can draft a valid contract.

    Looking forward to your response,

    Allan Parker

  • 2

    Letter of Understanding Sample #2

    Joe Gillard,
    Gillard Construction

    39 Hoboken 7198
    April 15, 2014

    Rachael Adams,
    67 Starling Street,
    NJ 5813

    Subject: Letter of understanding

    Dear Ms. Rachael,

    I am writing this letter to confirm the terms of our agreement, as per our discussion on April 13th 2014. I will be renovating your property, located at 67 Starling Street, starting June 1st 2014.

    According to the quotation I gave you in our last meeting, I will be charging $5,000 as my own service charges, which will be separate from the expenses incurred during the renovation.

    Keeping your requirements in mind, the estimated time frame for the renovations is 2 months. In case I am unable to complete the work within the given time period (2 months), I will be liable to pay back %5 of my service charges for every 15 days of extension.

    However, I will not be liable for any accidental damage to your property during the renovation. Kindly let me know if you have any concerns regarding these terms so we can finalize the contract before beginning work.

    Looking forward to your response,


    Joe Gillard

  • 3

    Template of a Letter of Understanding

    [Sender name]
    [Sender’s address, City, state, zip code]

    [Recipient's Name]
    [Recipient's address, City, state and zip code]

    Subject: [Letter of understanding for...]

    Dear [last name of the addressee],

    I am writing this letter in regards to the terms we agreed upon during our last discussion on (date of discussion/meeting). As per my understanding, I will be carrying out (your contracted work) for your (addressees’ interest) on the following terms:

    [Terms and conditions of the contract].

    Kindly let me know if you have any reservations regarding these terms.

    Awaiting your response,

    [Your name]

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