Why Should My Company in England Consider Using a Severability Clause in its Contracts?

Most business owners are very aware of the length and complexity of most commercial contracts. As with any document, the longer it is, the more likely it is to contain a mistake. Thus, you must consider how your company can avoid harm from the erroneous wording of a commercial agreement. This article will explore the use of a severability clause within a commercial contract and how it can help your company survive any linguistic errors.

What is a Commercial Agreement?

Firstly, let us consider what a commercial agreement is. Broadly speaking, this is a legally binding agreement between two businesses summing up the essential points within a commercial deal.

For example, many commercial contracts will see one business promise a specified sum of money in exchange for the other delivering goods or performing a service.

What is a Severability Clause?

Commercial agreements tend to record valuable deals, so the contract must remain enforceable to the highest degree possible.  

Severability clauses (or ‘severance clauses’) aim to ensure that the remaining provisions of a commercial contract remain binding on the parties if a small part of it is erroneous. Thus, if one particular clause is unenforceable, it will not automatically make the entire contract unenforceable.

Accordingly, a good severance clause aims to persuade a judge to strike through any invalid provision but leave the remainder of the contract in place. Most businesses are happy with this approach, as it usually seems harsh to strike out an entire 25-page agreement for the sake of a single provision being wrong.

However, as with all contractual clauses, severability clauses are not infallible but merely help the odds of the specified outcome occurring. With all of this in mind, let us consider some advantages of severability clauses below.

1. Gives Contract the Best Chance of Success

An entire agreement can be struck out as unenforceable due to erroneous wording, particularly if the unenforceable language is contained within a vital clause. However, a severability clause avoids this issue.

The presence of the clause demonstrates to the judge the parties’ intentions for the contract to survive any inaccuracy or minor error. This is important because judges take account of the parties’ intentions upon signing the contract when interpreting its contents in court.

Whilst severability clauses increase the odds of the remaining terms of a contract surviving any error or omission, they are not infallible. For example, if a commercial contract fails to contain a legally required clause, a severability clause is unlikely to save the written agreement.

However, on the other hand, if the contract erroneously states that it will last for ‘66 months’ instead of ‘six months’ and the parties agree this is a genuine error, a court may strike out the extra ‘6’. In saying this, it is essential to note that our courts aim to use severability clauses to strike out erroneous content rather than fully rewrite contracts. Thus, ensuring that most of the contract is right the first time is crucial.

2. Helps Interparty Relations

Putting forward a severability provision is a good way of showing that your business intends the contract to have its desired effect and will not likely search for a future loophole. In effect, your organisation is saying that absent absurdity, it intends to follow the contract’s wording to the letter. This can be highly beneficial during commercial negotiations.

It may be a slight concern if another business refuses to accept a severability clause. However, in that situation, your business may benefit from legal advice on the enforceability of the existing wording.

3. Helps Avoid Future Legal Disputes

If there is potentially erroneous wording within a signed contract, the other party can refuse to follow that clause or the written agreement itself. This may lead to a dispute between the parties, where one party wishes to continue the contract while the other states it has no effect. 

With a severability clause, a business can argue that any error would not defeat the remaining portion of the contract. Regardless of whether this argument would ultimately succeed, it provides a grey area to settle matters amicably rather than risk legal action.

However, this option for out-of-court dispute resolution becomes more challenging without a severance clause. Overall, whilst settlement remains possible, it is more likely that the parties will engage in legal proceedings to let a judge decide whether the contract survives.

Key Takeaways

Using a severability clause within your commercial contracts gives them the best chance of success under applicable law. For this reason, most business owners wish to utilise a severability principle within their written agreements. Above all else, they promote certainty between the parties that they will follow the contract terms absent absurd circumstances. However, given that the wording of severance clauses can be tricky, it is usually advisable to have a lawyer draft suitable wording.

If you need help drafting and creating severability clauses, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page. 

Frequently Asked Questions

Are there any restrictions on what a judge will do under a severability clause?

A judge will not action a severability clause in a way that creates an outcome outside the parties’ original intentions.

Do businesses bring legal action debating the effectiveness of severance clauses?

Yes, some legal actions focus on one party’s insistence that the severance wording ‘saves’ the contract, whilst the other business will argue that it does not. However, absent weak severability wording, most cases of this kind tend to settle before the final hearing.