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Many unforeseen and exceptional circumstances prevent businesses from fulfilling their contractual obligations, presenting hurdles to even the most well-established enterprises. If you cannot fulfil your contractual obligations, you should take prompt and proactive steps to address the situation. This article will explain the steps you can take if you find fulfilling your business’s contractual obligations challenging.
Contractual Obligations
Many business owners face challenges fulfilling their contractual obligations due to unexpected market shifts, financial constraints, or external factors beyond their control. Contractual obligations refer to the responsibilities and duties that parties agree to perform as part of a legally binding contract. They are promises that you are legally obliged to honour. Your obligations are found in the terms of the agreement.
If you cannot perform a particular action or deliver within a set deadline, you may be in breach of contract. This can be worrying for founders and business owners. It can result from circumstances outside their control. Every contract is different. Your contract may require you to take specific actions in this situation.
The following section breaks down the steps you might take if you cannot fulfil your business’s contractual obligations.
Steps You Should Take
1. Familiarise Yourself With the Contract
Carefully read over the terms of the contract you are concerned about. You may find a solution within the contract itself. For example, you may be able to terminate the contract because of a particular event or set of circumstances.
You may also find a dispute resolution framework you can follow if you cannot perform your obligations or breach the contract.
2. Seek Legal Advice
At this stage, it can be beneficial to consult a legal professional. They will help you:
- understand the legal implications of the situation;
- explore potential remedies or solutions; and
- mitigate legal risks.
They can guide the best course of action based on your specific circumstances and applicable laws.
3. Communicate With the Other Party
After familiarising yourself with the contract, contact the other parties involved. Transparency is crucial. Clearly explain the challenges your business is facing and how they impact your ability to meet your obligations. Letting the other parties know about your difficulty may be worrying, but it is necessary to let them know as soon as possible. Do not ignore the situation; this can worsen the consequences.
Open a dialogue to communicate with the other parties. Perhaps there are potential modifications you can make to the contract terms with their consent. For example, you may be able to:
- extend deadlines;
- modify payment terms; or
- adjust deliverables.
If you can leave plenty of time to deal with the situation, do so. More time can increase the chances of successful negotiation about extensions or modifications.
If modifying the existing contract is not feasible, negotiate alternative solutions. Alternative solutions may involve outsourcing specific tasks or collaborating with third parties to mitigate the impact. This is often more amicable than a complete breach of contract.
4. Keep Records
Keep detailed records of all communications related to the issue. Your records should include:
- emails;
- letters; and
- any other relevant documentation.
These records can be valuable in case of future legal disputes. Thorough records can serve as evidence that supports you further down the line. They can also illustrate your commitment to resolving the issue in good faith.
5. Mitigate Damages
Minimising the potential impact of a lack of performance of a contractual obligation is crucial for all parties involved. Take reasonable steps to minimise possible damages to the other parties. This could include finding alternative solutions or offering partial performance of your obligations. Keep records of your mitigation efforts.
This cheat sheet will explain your SaaS contract essentials.
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Key Takeaways
As a business, you must undertake several key steps if you find you cannot fulfil their startup’s contractual obligations. These include the following:
- familiarise yourself with the contract you are concerned about;
- seek legal advice;
- communicate with the other parties as soon as possible;
- keep records of all communications;
- take reasonable steps to mitigate damages.
Remember that every situation is unique, and the appropriate actions may vary based on the specifics of a business contract and the nature of your business relationship. Seeking professional advice and maintaining open communication with the other parties are vital in managing such situations effectively.
If you are experiencing issues fulfilling your business’s contractual obligations and would like legal advice, our experienced startup 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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