Understanding Demand Letters in Canada: A Guide for Small Businesses

Running a small business in Canada comes with its fair share of challenges, including dealing with late payments, contract breaches, and other disputes. When informal communication fails to resolve an issue, a demand letter can be an effective legal tool to encourage the other party to comply with their obligations.

What Is a Demand Letter?

A demand letter is a formal written notice sent by one party (the sender) to another (the recipient) outlining a legal claim and requesting a specific action. It typically includes:

• Details of the dispute (e.g., an unpaid invoice, breach of contract, or property damage)

• A demand for action (such as payment or contract fulfillment)

• A deadline for response or compliance

• Consequences if the recipient does not comply (e.g., legal action)

While a demand letter is not a lawsuit, it serves as a precursor to legal proceedings and demonstrates that the sender is serious about enforcing their rights.

How Can Small Businesses Use Demand Letters?

For small business owners, a demand letter can be a cost-effective way to resolve disputes without going to court. Here are some common scenarios where demand letters can be useful:

1. Collecting Unpaid Invoices

If a client refuses to pay for services or goods provided, a demand letter can serve as a formal request for payment before escalating the matter further.

2. Contract Disputes

When a vendor, partner, or customer fails to uphold their end of a contract, a demand letter can prompt them to fulfill their obligations or renegotiate terms.

3. Lease and Property Issues

If a landlord or tenant is violating lease terms, a demand letter can clarify legal obligations and request corrective action.

4. Cease and Desist Notices

If another business or individual is using your intellectual property or engaging in defamatory actions, a demand letter can warn them to stop before legal action is pursued.

Do You Need a Lawyer to Send a Demand Letter?

While demand letters are legally enforceable, they do not have to be drafted by a lawyer. A business owner can write one themselves, but having a lawyer draft or review the letter adds credibility and ensures proper legal language. In many cases, receiving a letter on legal letterhead increases the chances of compliance.

What Happens After Sending a Demand Letter?

After sending the letter, the recipient may:

• Comply and fulfill the request

• Negotiate a resolution

• Ignore the letter, which may lead to legal action

If the issue remains unresolved, the sender may consider filing a lawsuit in small claims court (for amounts up to $35,000, depending on the province) or pursuing alternative dispute resolution methods like mediation.

Final Thoughts

A well-crafted demand letter can help small businesses resolve disputes efficiently, saving time and legal costs. Whether dealing with unpaid invoices, contract breaches, or business conflicts, this legal tool can encourage compliance and protect your business interests. If in doubt, consulting a lawyer can ensure the letter is effective and legally sound.