For all types of businesses, the world of commercial contracts may seem somewhat of a minefield, with modern contracts getting longer and longer by the day.
This is a particular burden on startups, who don’t have the luxury of an in-house legal team and can find the scale and complexity of commercial contracts daunting.
However, all is not lost, as many commercial contacts share similar traits and knowing what to look out for can help you quickly identify any risk potential.
In this article, we look at five areas of commercials you should check before signing to stand you in good stead regardless of the subject matter or the scale of the document.
Why is it essential to check a commercial contract before you sign it?
It’s very easy to get caught in the trap of thinking of a new contract as simply a ‘tick box’ exercise (i.e. a formality that needs to be signed off to get the deal off the ground).
It can be dangerous to think all commercial contracts are born equal. They are important legally-binding documents and, unlike consumer contracts, it is very much a case of ‘the gloves are off’ with business-to-business contracts, with scant legislative protection available to save the uninitiated from a bad deal.
Therefore, it is vital that, at a minimum, you read a commercial contract through before signing. At least you know what the document contains and can make a judgement call.
What are the top five points to look out for?
1. Contractual obligations
The first things to check for in your contractual obligations are:
- What does the contract oblige you to do?
- Are you able to meet the obligations to the levels and standards required?
- Do the obligations and duties accord with what you agreed upon during negotiations?
You should take great care of the contracts to ensure that the agreement represents fairly and accurately your agreed commitments and that you are confident that you can meet them so that you do not leave yourself in breach of contract.
2. Timescales and deadlines
In addition to the point above, not only is it essential to check on the contractual obligations, it’s just as important to check that you can meet those obligations within the timescales provided.
If there’s any doubt in your mind, it’s wise to allow some extra leeway on those dates to be sure that you can.
3. Fees/prices and payment terms
Always keep a close eye on the pennies! Check carefully for the agreed fees or prices for goods or services.
Once the contract is signed off, it is too late to change it. So, you’re better off checking payment terms in detail than regretting it later.
Also, have you thought about including inflationary increases or regular price reviews? This may help prevent a good deal from becoming a bad one in the future, particularly in view of the current very high UK inflation rates.
4. Limitation of liability clauses
These clauses are critical as a risk management tool. Remember that in the absence of a limitation of liability clause, your potential liability is generally unlimited as a commercial provider of goods and/or services. This should focus the mind and highlight the importance of limiting your liability to reasonable (and insurable) levels with a well-drafted clause.
Like most startup owners, you’ll no doubt highly value privacy and confidentiality when it comes to matters in connection with your business.
A good confidentiality clause can enable business with your contracting partner to flourish without the fear that a damaging leak may harm your business interests.
Should I take legal advice before signing?
If you’re very new to contracts of this type and the contract is exceptionally high value or of high risk to your business, it would be sensible that you arrange for a contract lawyer to review your document. They’ll be able to help you identify any points of contention and ensure your best interests are protected.
Ashley Gurr is a commercial and business lawyer at LawBite. Ashley has over 15 years of experience in private practice helping SMEs and in-house for an international consultancy group advising on commercial contracts and a multi-national utility giant in a contract strategy role.
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