Even seasoned business owners succumb to errors when it comes to commercial contracts. These mistakes can lead to costly contract disputes and jeopardise your business’s progress. The good news? There are ways to make your commercial transactions foolproof.
If you’re a business owner based in Bournemouth, this guide will explain common mistakes that you need to avoid when getting into a commercial contract. Moreover, it explains the role of commercial contract solicitors in Bournemouth so you can make informed decisions.
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Types of Commercial Contracts
First off, let’s rewind what a commercial contract is and its types.
A commercial contract is a legally binding agreement between businesses for numerous activities. It outlines the rights and obligations of the parties. Terms for transactions such as sales, services, or partnerships are clearly stated.
Types of commercial contracts a business might get into include:
- Supply agreements
- Service agreements
- Partnership agreements
- Agency and distribution contracts
- Joint venture agreements
- Outsourcing agreements
- Franchising agreements
- Software licensing agreements
- Non-disclosure agreements (NDAs)
Each contract carries its own terms and conditions, and should comply with UK law to be applicable.
Common Mistakes in Commercial Contracts
Using Standard Contract Templates
Using a one-size-fits-all approach when making a commercial contract is a huge mistake. Generic templates often fail to address the unique needs and requirements of a contract.
For instance, you need to add industry-specific provisions in an outsourcing agreement. When you use a standard contract template, you might have to say goodbye to clarity and precision. A template downloaded from the internet might be based on outdated statutes or the laws of a different jurisdiction.
Vague Language or Contract Terms
Another common mistake businesses make when getting into a commercial contract is the usage of vague language. Ambiguity invites disputes – this is the number one thing to remember about contracts.
Terms like “reasonable efforts” mean a lot of different things to different parties. One party might think of it as “best efforts” and set expectations accordingly. Therefore, it is important to define subjective terms clearly and use precise, consistent language.
Failing to Define the Scope of Work
Next, businesses begin drafting commercial contracts without understanding or defining the scope of the work. When it isn’t clear exactly what is included in an agreement, misunderstandings are almost inevitable.
The solution? Always, always agree on core terms before enforcing the contract. This includes each party’s responsibilities, timelines, expectations for deliverables, and the payment structure. Parties end up in conflict, not because of a breach of contract. But simply because they had different expectations.
Making Handshake Deals
So you’ve worked with a company for years. A contract has never gone sideways. In such cases, it is tempting to rely on verbal agreements to avoid paperwork. But handshake deals are notoriously risky.
A change in leadership and expectations can render your verbal agreement useless. Therefore, always get all communications and partnerships in writing. Complete transparency will save you from costly legal battles.
Omitting Dispute Resolution
No matter how many precautionary measures you take, commercial contracts are prone to conflicts. Many businesses fail to include clear steps for conflict management in commercial contracts. The result? Panic and downtime when a conflict actually occurs.
Mention clear steps for conflict management. This can include:
- Negotiation
- Arbitration
- Mediation
You will have a clear pathway in case a contract goes sideways. In construction contracts, for instance, there are numerous reasons for a conflict, including:
- Workmanship defects
- Payment disputes
- Delays
- Mismatched scope of work
Ignoring Termination Clauses
Along the same lines, many businesses fail to mention a terminal clause in the contract. When you don’t have an exit strategy, you’re exposed to all kinds of risks.
Businesses think they can simply end a contract if it’s no longer working. In reality, contracts set out specific rules for termination. This can include required notice periods, specific grounds for ending the agreement, or formal steps that must be followed. If these conditions are not met, you might amount to a breach of contract.
Failing to Get Legal Advice Early
Post-signature disputes are the worst nightmare for a businessman. Unfortunately, many owners delay getting legal input, which leads to costly rework.
Seeking advice from an experienced commercial contract solicitor can make a world of difference. They are trained to deal with a myriad of matters, including:
- Drafting commercial contracts
- Negotiating commercial contracts
- Ending a commercial contract
- Commercial contract dispute resolution
- Commercial contract renewal
They can also advise you on the type of commercial contract your business can most benefit from. With a solicitor by your side, everything is done in accordance with the law, leaving no room for legal disputes.
Poor Record Keeping
Drafting a commercial contract is only part of the equation. You also need to store and update it if needed.
Many businesses fail to track changes. Different stakeholders may work from outdated or incorrect drafts, which leads to confusion. Therefore, proper record-keeping is crucial.
Summary
By avoiding these common mistakes and sticking to professional help, you can make sure that your commercial contract is foolproof and error-free. Be sure to understand that professional legal help is necessary in such matters, so you can be informed and carry out the process efficiently.
Legal Disclaimer: Please be advised this article is for informational purposes only and should not be used as a substitute for advice from a trained legal professional. Please seek the advice of a legal professional if you’re facing issues regarding commercial contracts.
