Common Mistakes When Negotiating a Commercial Contract With Another Business in the UK

As a business owner, you will have experience entering into commercial deals with other companies.  While some negotiation processes are relatively straightforward and swift, others can be more complex and arduous. Given the potential value of some commercial arrangements, you may encounter various challenges during any contract negotiation process. This article will explore some common mistakes businesses make when negotiating a commercial contract with another company, so your organisation can put strong commercial agreements in place.

Why is Negotiation So Important?

Preparation is an essential part of your business negotiating a commercially beneficial agreement. Simply put, failing to adequately negotiate a business contract with another company will likely result in a contract biased towards them.

So, for example, you may suffer a contract that allows the other party to:

• withhold payment in unreasonable circumstances;
• use your images and intellectual property without your prior consent;
• exit the commercial arrangement at short notice (or no notice);
• terminate the contract without payment of damages or exit fee; or
• perform unusual actions or place overbearing duties on your company.

Given that a commercial contract is a written, legally-binding record of a deal between two companies, it must suit your organisation as well as the other party. Accordingly, negotiating plays a very important role.

Let us consider some common hurdles companies face when negotiating commercial agreements.

1. Unbalanced Negotiations

A typical example is where one company uses a lawyer to negotiate while the other does not.  

A commercial contract lawyer can successfully deduce which sections of a draft contract are the most vital and how to put forward a proposed ‘compromise’ in their client’s favour. A lawyer will also be harder to pin down because they can phrase things neutrally and avoid confrontational language. Accordingly, this makes it harder to learn their client’s true intentions within negotiations. This may result in your organisation having to agree to a bad deal.

Finally, a company receiving advice from a lawyer will know which parts of the contract are reasonable and balanced and which require amendment. Their lawyer will enable them to make strong amendments using neutral language and sound reasoning. In summary, the art of negotiation is second nature to commercial contract lawyers.

2. Misinterpreting Contractual Wording

This leads to another common issue, which is misinterpreting contractual wording. Certain types of commercial contracts tend to contain language in a legal style (otherwise nicknamed ‘legalese’).

Sometimes the literal reading is different to the actual effect of that clause. For example, some potential business partners may seek to add clauses that their lawyer has advised them to have no real legal effect, just on the off chance that you fail to notice (and follow the clause regardless).

On the flip side, sometimes a clause can seem tame and innocuous but, in reality, proves itself to have a nasty side-effect after the contract starts. 

3. Agreeing to Things Outside the Contract

This is a common pitfall within contract negotiations. The primary point of a commercial agreement is that it records everything of note within a deal between businesses.

Therefore, it is vital to avoid making ‘informal’ arrangements outside the contractual wording. Terms outside the contract are unlikely to be binding on the parties, and there may be little your company can do if the other business changes its mind later.

4. Failing to Validly Sign the Written Agreement

Once the negotiations and drafting have been finalised, the final stage involves signing the written agreement. Here, it is essential that you validly sign the contract.

Different contracts require various forms of signature (and witnesses), so it is helpful to obtain legal advice before attempting to sign. There is little point in engaging in successful negotiation but failing to ensure the final agreement is legally binding.

Key Takeaways

Every negotiation is different and depends on the nature of the agreement and the parties involved.  However, an effective negotiation style can help your company reach the best deal possible. Many business owners use expert lawyers due to their experience and expertise in drafting and finalising written agreements. However, even within more simple contracts, the main takeaways include the use of neutral language and the setting of sensible and clear negotiation lines.

If you need help negotiating your commercial agreements, 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. 

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