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As a business owner, your commercial contracts likely underpin every aspect of your business’ operation. For this reason, it is important to review and regularly update your contracts to ensure they adequately protect your business and reflect your ongoing legal obligations. However, most business owners are unsure about when they should review their commercial agreements. This article explains the importance of reviewing your commercial agreements, as well as three instances when you should review said agreements.
Why Should Business Owners Regularly Review Their Commercial Agreements?
A contract is there to govern commercial relationships and to protect your business if things go wrong. Therefore, a contract must cover your products and services and the risks your business could face from time to time.
Contracts should be living documents, meaning you should constantly review and update them during your business journey. You must ensure that, over time, you refine your contracts to protect your business as much as possible.
Download this free Commercial Contracts Checklist to ensure your contracts will meet your business’ needs.
When Should Business Owners Review Their Commercial Agreements?
The following are examples of when you should review your commercial contracts.
1. Changes To Your Business Operation
Over time, a lot can change in a business and the business world. As such, it is crucial to ensure that your contracts are appropriate for your business activities. Failing to update your contracts over time could expose your business to risk. For example, if your contract fails to cover vital legal provisions, you need to protect your interests.
External events also dictate change from time to time. For example, the Covid-19 pandemic made many businesses reconsider whether their contracts were robust enough. Many businesses adapted their contracts to exempt them from liability if unexpected events delayed or prevented the performance of their contractual obligations.
Some examples of events which may require you to change your contracts include:
- your business starts to sell new products or services over time;
- your business starts to service both consumers as well as business customers;
- your business changes its payment terms, such as charging interest for late payments;
- there are changes in your insurance cover, which means you need to reconsider your limitation of liability clauses; or
- your contracts need updating to reflect changes in bank interest rates.
2. Changes to Laws and Regulations
The law is constantly changing. Certain areas of law are particularly fast-moving, such as data protection laws. The UK has seen various additional developments in data protection laws following Brexit, including the introduction of the ‘UK GDPR’ and changes in international data transfer documentation.
Your commercial agreements must be up to date with current laws so that they are:
- legally binding;
- compliant with legal requirements; and
- shows customers that your business is reputable and complies with relevant legal rules.
3. Learn From Experience
Over time, you will come to understand the risks that are particular to your business. You will also understand what issues your contracts have caused over time, including customer problems. As a result, you should regularly review your contracts to consider how best to improve them. You should reflect carefully on any contract challenges you may have faced and consider how to strengthen the provisions in your agreements accordingly.
For example, you should consider whether you can:
- remove unnecessary legalese from customer contracts that might be confusing;
- make terms more balanced to reduce negotiation time;
- introduce new early payment discount clauses to encourage prompt customer payment;
- include a detailed dispute resolution procedure;
- strengthen the liability provisions in your commercial contracts as you encounter new commercial risks; and
- refine key clauses to protect your business further, such as additional termination rights.
It is advisable to work with an experienced commercial lawyer during the contract review process. A commercial lawyer can review your agreements, advise on relevant risks to consider and make proactive suggestions on changes you can make to protect your business further.
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Key Takeaways
You should review commercial agreements to support your business’s changing needs and ensure compliance with the law. You should review your agreements at various stages, such as when there are changes in your business operations or changes in law. Further, you should conduct general reviews (ideally annually) to reflect the challenges your business has faced and update your agreements to mitigate against new risks.
If you need help reviewing or updating a contract, 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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