Five Questions to Ask Yourself Before Signing a Commercial Contract in England and Wales?

Finalising contracts is a crucial part of running your business. Whether it relates to sales, purchases or services, you will sign various agreements on behalf of your company. However, if you do not take the time to understand the contract you are signing, there could be significant consequences for your business. This article will discuss the main questions you should ask yourself before signing a commercial contract on behalf of your business.

1. Is the Wording of the Contract Aligned With Its Purpose?

Firstly, it is critical to tailor a commercial contract to reflect the intentions of each party.

So, for example, let us say your company enters into a contract with a printing company to purchase three toner cartridges for the office printer each month. This is only likely to require basic clauses confirming the monthly cost, monthly delivery dates and method of ending the contract. 

If the contract is with an IT company providing laptops, remote servers and data security, you will require a lengthier contract. This is because the contract will need to address additional factors such as:

• what happens if the server access goes down;
• the rights to your business to claim compensation or to terminate the contract upon any breach of contract; and
• defining how owns the information stored on the servers and what happens to it when the business relationship ends, etc.

2. Is the Content of the Contract Accurate and Clear?

Every commercial contract should ensure the agreed terms accurately reflect the verbal agreement between parties. 

So, for example, if you verbally agree to pay a caterer £50 per week to provide lunch to staff each Friday as a trial, the contract should state:

• the amount of £50;
• that the delivery of food must occur each Friday;
• that the food should arrive no later than lunchtime (and detail those lunchtime hours); and
• when any trial period would end.

Ultimately, including as much relevant detail in your contract as possible is a great way to ensure there will be no confusion. But, unfortunately, when there are crucial details missing, it creates more questions than answers!

3. Are the Payment Terms Suitable For Your Business?

Commercial contracts often involve the exchange of money. Therefore, it is vital to ensure that the written agreement details all payment information. Naturally, a contract’s value will reduce if your business or the other company are unsure about the details regarding payment. 

In this way, payment terms within business contracts should always clarify the following:

• the amount of money to pay;
• when a party should pay it (and whether it is a weekly, monthly or yearly payment);
• the circumstances in which the amount may increase (or decrease); and
• when a party may refuse to pay (e.g. when the goods do not arrive on time) or seek to renegotiate the price.

4. Is There a Fair and Reasonable Termination Clause?

Think of a termination clause as the equivalent of a divorce between the contracting parties! While your company enters the contracts in good faith, you need to ensure that you can terminate the contract if something significant goes wrong.

A suitable termination clause should reasonably treat your business (and the other company). This may be by ensuring that any notice period to exit the signed contract is not absurdly long. Furthermore, it is helpful to ensure that the communication method is simple (for instance, by email).

5. Would Your Business Benefit From Legal Advice on the Contract Terms?

It is worth obtaining expert legal advice if the commercial contract in question is one or more of the below:

• complex;
• very lengthy;
• vital to the success of your business; or
• worth a large amount of money.

A specialist lawyer will be able to advise you on whether: 

• the contract obligations are reasonable;
• the wording is fair; and
• the most critical clauses (such as termination clauses) are workable. 

Additionally, it is worth being aware that some contracts could contain provisions enforceable by a court. Therefore, a lawyer can tell you which parts of the contract your company may or may not need to consider heavily. 

Overall, obtaining prior advice from a lawyer rather than when the contract has gone wrong is an excellent prevention strategy.

Key Takeaways

Negotiating and signing a commercial contract on behalf of your company can involve several hurdles. During negotiations, it is essential to try and keep the objective of the agreement in mind. Additionally, it would help to consider consulting a lawyer to help make the process safer and quicker.

If you need help with negotiating and signing contracts, our experienced commercial contract lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.

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