Avoiding disputes in fixed term commercial contracts
Fixed terms contract can be attractive to businesses; they can often provide certainty of cash flow and supply but their inflexibility can cause difficulty when the time comes to end the relationship or something goes wrong.
Our commercial litigation solicitors have a real depth of experience in advising clients on disputes about fixed term commercial contracts and providing tactical guidance how, and when they can be terminated.
Lessening risk in fixed term contracts
What can you do to help guard against fixed term contract disputes? Some top tips are below:
- Due diligence
Undertake due diligence on the contract, with early legal advice and undertake due diligence on the other party if you have not dealt with them before.
Fixed term contracts can be used purposefully by less reputable companies to unfairly latch themselves onto more successful and reputable ones.
- Tailor the contract
Fixed term contracts can arise in many forms. They might be for a long fixed period, with or without the right to terminate early. They might be fixed for a short initial period which automatically terminate at a certain date. They might be fixed for an initial period and turn into a rolling contract. One party might suggest a structure which suits them, but not you. Consider which is best for you.
- Check every term
Read and make sure you understand each and every term. Risk in fixed term contracts is arguably higher, and requires greater care. Look for what may be missing as well as what is expressly covered. Taking early legal advice against later issues.
- Seek clarification
If any part is unclear, seek clarification expressly from the other side in writing, or take legal advice before entering.
- Do not sign until you are sure
If you have had opportunity to check the terms and conditions, but don't and still sign that you agree, you are likely in law to have accepted the terms whether or not you read them or understood them fully at the time. Make sure you understand each and every clause in detail before agreeing.
- Be quietly sceptical
If another company insists you use their terms, which appear to be a long fixed term agreement, be sceptical that there are probably several traps in there which seek to give that party a commercial advantage. Do not assume the terms are fair; they probably aren't.
- Put in termination rights
Fixed term contracts become a real issue if there are no express termination provisions.
If you or the other side suggest a fixed term contract which has no express or only limited termination rights, consider either negotiating a "get out" clause or consider whether you can agree. This may save you from an expensive dispute or costly mistake later on.
- Check the termination process is clear
Many disputes arise because the correct termination process has not been correctly followed by a party. If a contract is terminated incorrectly, this might constitute a breach which allows the other side to sue. Make sure the process is clear and followed carefully.
- Stress test the contract
If you know a risk is likely to occur, check what the contract provides for in that event. I.e. if you know the other side is slow to provide goods on time, or slow to pay invoices, make sure that the contract protects against that.
Consider issues you, other business people you know or competitors have had and ask "if that were to happen here, what does the contract provide for?"
- Check if penalties and restrictions are enforceable
Many businesses put standard penalty clauses and restrictions in their commercial contracts knowing that they are not legally enforceable, but to try and coerce or steer the other party from doing something.
Sometimes liability is excluded or limited when it cannot be in law.
Taking legal advice can help you assess whether or not these are enforceable.
- Check for additional terms
Even in detailed, lengthy fixed term contracts that appear to cater for all eventualities, additional terms which are not express in the contract may be implied by statute. For example, there are certain provisions for goods and services which cannot be contracted out of and can add to the express terms. Make sure you are aware of them, early legal advice can assist.
- Avoid assumptions
Do not assume necessarily that the other side knows what its own terms and conditions mean or imply. They may have drafted these hurriedly themselves or got in house lawyers, but not fully understand the implications.
If a fixed term contract is suggested in terms which are not acceptable, try negotiating terms or suggesting amendments that better suit you, or potentially protect both parties before entering into it. If the other side refuses, consider if you can take the risk. Early legal advice can assist. This may convert a risky commercial deal into something more workable and secure.
- Tailor the contract
There can be a real commercial advantage to tailoring term and conditions to your advantage and suggesting these to the other side. Consider what specific risks and protection you will likely need and try and tailor the contract to meet this.
Early legal advice, prior to entering a fixed term contract, is a sensible investment which might prevent a costly dispute from later arising.
Fixed term contracts can be a powerful tool or a real headache. If you have a potential dispute about a fixed term contract, which you either wish to terminate, or if you want to bring a claim against another party for incorrectly terminating one, please get in touch for an initial discussion how we can help.
Contact our Commercial Litigation Solicitors London
At Saunders Law, we're dedicated litigators, with vast experience assisting clients to resolve their commercial disputes. We're well-known for our high-profile work and excellent client satisfaction.
Working from offices facing the High Court in central London, we're also ideally located to handle commercial litigation. For a free, no-obligation, initial discussion of how we may be able to help, please contact us on 02076324300.