Your Commercial Contract – Factors to Consider
If you’re thinking about signing a commercial contract, there are lots of things you need to be aware of. Read on and check that you’re prepared.
How the contract will be carried out?
The obligations of both parties in performing the contract should be detailed. Try to make it clear at what point in time both parties will be expecting progress. If the buyer is required to do something in order for the contract to advance then you should make sure that the buyer is aware of their duty and this is written down.
If necessary you could make a list detailing exactly what the other side should and should not be doing. If something may jeopardise the performance of the contract, then make sure that the buyer is aware of this and once again it is provided for in the contract.
When will the goods be delivered, or the contract performed?
Delivery can often be another contentious point in a contract. Negotiate any delivery dates carefully. Try to plan ahead and make sure that you are able to perform the contract by the arranged date.
The same principle applies to an anticipated contractual performance date. Make this as realistic as possible – if you think it might help, agree and document a more specific timetable. Many contracts have a liquidated damages clause which, provides for the seller paying damages to the buyer in the event of late delivery. The amount agreed in this clause can be negotiated but it should take into account the buyer’s expected losses if the contract fails to be carried out on time.
Both parties will want to detail the situations in which they are able to terminate the contract and walk away. You should include a termination or renewal date in the contract that will give either party the option to pull out at a later stage. You should also detail any required notice periods.
Although it is not a business friendly term to negotiate, it is a good idea to have a termination clause based on performance of the contract by both sides. If the contract is not performed correctly, then either side should be open to terminate it without notice. Depending on what is agreed, this clause can go into quite a bit of detail listing the situations in which termination would be appropriate.
Other important issues
Other important issues covers areas such as intellectual property (‘IP’) rights under the contract and any security that is to be provided.
If the contract includes IP rights then you should make sure that you take expert advice from a specialist IP solicitor. Protecting and trading IP involves using complex areas of law. The correct formalities and methods of protection need to be used so that IP rights are not infringed and in the event of an infringement you are able to seek a compensatory remedy.
If the buyer is providing any security for the contract such as a guarantee, lien or pledge, then this should be included in the terms of the contract.
Standard terms and conditions
Most commercial businesses or sole traders have a set of standard terms and conditions, which they apply to their contracts. These contain information such as interest rates for late payment and liability under the contract. When attaching these standard terms, check that they don’t conflict with anything which has been agreed bespoke to the contract. If you find a conflicting term then you must decide upon which is more favourable and highlight any changes to the buyer.
If you are a new business and haven’t yet set up your own terms and conditions then talk to a solicitor when drawing them up. An experienced commercial solicitor will be able to check that your standard terms are comprehensive and legally fair. Once your standard terms have been designed these should be applicable to most contracts.
When performing the contract try to include a copy of your standard terms and conditions for the buyer’s information on any invoices or delivery notes.
If you need advice on any commercial contract agreement, contact an experienced commercial solicitor – it will help protect you in the long run.
Tim Bishop is senior partner at Bonallack & Bishop (http://www.bishopslaw.co.uk ), a firm of solicitors with a team of specialist commercial solicitors who offer legal advice in Salisbury. He has grown the firm by 1000% in 13 years and has plans to expand further, seeing himself as a businessman who owns a law firm.