December 4, 2023
When it comes to commercial contract law, the devil is in the details. While the temptation to skim, or even template your commercial contracts is strong, you do so at your own peril. You run the risk of disputes, the loss of services or goods, or the collapse of commercially beneficial relationships. Put simply - your commercial contracts deserve a fine-tooth-comb approach.
Here we consider: what should you be wary of; what makes a commercial contract legally binding; and what happens when things go awry?
In this article, we address commercial contract law FAQs, the things we get asked all the time. From the basics to key clauses you should watch out for. We’ll take you on a whistle-stop tour of the key stumbling blocks of commercial contract law - so you can seal the deal with confidence.
So, without further ado - let’s begin.
Let’s start with the fundamentals: while the scope and purpose of your commercial contracts will shift according to the context, you can be certain that a few basics that will come up time and time again.
You can expect most commercial contracts to cover:
Make sure your commercial contracts cover the above (at a minimum) - it will save you time and hassle in the long run.
Many different agreements sit under the “commercial contracts” umbrella. Below, we’ve listed a few commonly used contracts:
While the purpose of your commercial contract will vary - whether that’s an NDA or a service agreement - there are certain terms that should be reviewed and considered carefully. These include:
It’s pretty self-explanatory: ironing out and detailing the key commercials of an agreement are crucial. It is incredibly common for terms to be agreed over email, without ever making it into the final contract - so be diligent with the inclusion - and detail - of your must-have terms.
Despite best intentions and amicable beginnings, commercial relationships can break down. This is where template or skimmed agreements really collapse - absent of input from a lawyer that’s seen the worst and knows how to prepare for it. Terms related to dispute resolution can offer clarity amidst the difficulty of a dispute - with a clear outline of what needs to be done and in what order in the event of a relationship breakdown between the parties.
If your commercial contract involves the exchange of goods or services, you’ll want to play close attention to your price and payment terms. What’s been agreed? Does the agreement reflect this? Are these payment terms something that you and the counterparty - agree to be legally bound to?
Some commercial contracts will necessitate the exchange of sensitive commercial information - make sure that any confidentiality obligations are clearly outlined, and legally enforceable.
Legal liability will be a particularly important component of your commercial contracts. With the help of a lawyer, you can ensure liability terms are a fair allocation of the risk, while negotiating a level of liability that is either acceptable to your business, or favourable - depending on the type of contract you’re entering into.
How long can you expect the terms of this commercial contract to last? What happens if someone wants to terminate? What are the consequences of terminating early? Pay careful attention to these terms and ensure you’re protected in the event of a relationship breakdown or if you need to exit the agreement earlier than originally planned.
Some commercial contracts will involve the creation of valuable intellectual property. However, unless you’ve stipulated who owns what, you run the risk of either losing ownership over the work - or having limited rights over how you use that work. As a result, your intellectual property terms will be an area worth going over in fine detail.
To create a binding contract in the UK, you need to meet five basic elements: offer, acceptance, consideration, intent to create legal relations and certainty of terms. Below, we’ve demonstrated how a “binding contract” could arise from an email exchange.
Here you can see an offer has been made, the terms have been set, they’ve been considered, and, ultimately, accepted.
While a commercial contract will, undoubtedly, have more complexity and detail, it’s worth knowing ahead of time what could actually get you into a legal bind.
Wondering whether your emails could land you in legal hot water? Explore our guide to email exchange risks and tips.
To the surprise of many, a commercial contract doesn’t have to be in writing and will form as long as the above components are met. However, the risks of not doing so are monumental. Commercial contracts are, unsurprisingly, valuable, meaning you may risk the loss of profits, services, or goods, based on unclear terms within an unwritten contract.
Similarly, without terms in writing, you lack the expert protection of a lawyer who has been trained to think about consequences, liabilities, disputes, terminations, and unexpected issues of a contract. For those without a contract and seeking to challenge the unwritten terms of an agreement - a lengthy, complicated legal battle awaits and the outcome will be uncertain.
So, does a commercial contract have to be in writing? No.
But you will absolutely want it to be.
Before signing on the dotted line, what should you be aware of regarding commercial contracts?
Here, we can’t stress enough the value of a commercial lawyer. Having spent a lengthy and experienced career wading through thousands of commercial contracts, your lawyer will have a laser-focus on the key hurdles - and opportunities - that hide within the pages of your contract. As a starting point, it helps to think about:
A commercial contract is a legally binding agreement that tethers a business - across financials, service obligations, and legal liability. As a result, you want to have a keen understanding of your commercial counterparty, their solvency, and the potential risks of creating a relationship with them. Here, a lawyer could support you with “Know Your Counter Party” checks, which would include a probe into the counter party’s identity and history (for example, whether they have any history of bankruptcy).
Confidentiality is key in a commercial context, with the intellectual property of your business often being its differentiating feature against a swathe of competitors. However, some commercial contracts will require disclosure of commercial details that you would prefer to be kept within trusted parties. For agreements that disclose sensitive materials, make sure you have confidentiality clauses in place to protect your most valuable assets.
Commercial contracts aren’t written in stone, and it’s important when entering into them that you’ve thought carefully about what your goal is for the negotiation process. While you want to secure favourable terms for your business, you also want to strike the balance between achieving commercial goals - and building a long-term beneficial relationship. As a result, negotiating commercial contracts is one area in particular where you’ll be grateful that you’ve got a lawyer. At a high level, it's important to be clear on your goal, even clearer in your communication of it, and to be mindful of the importance of being reasonable in your requests.
While it isn’t necessarily a bad thing if a commercial contract is lengthy - as long as the content necessitates it - more often than not, an exceedingly lengthy agreement will be heavy with legal-jargon, and - at times - peppered with unsavoury terms.
A good commercial contract should be easy to navigate and understand, while being comprehensive enough to carefully consider all necessary commercial terms. If you’ve been hit with a commercial contract that’s impossible to decipher - it’s important that you either take the time to dissect what’s in front of you, or to enlist the help of a legal professional who can ensure you avoid unwittingly sign your leverage away.
From time to time, there may be a dispute over the terms found within a commercial contract. However, if you began the process with the benefit of a lawyer, you’re more likely to secure a beneficial resolution - compared to if you hadn’t looped in expertise.
Many commercial contracts will include information on what to do in the event of a dispute, but from time-to-time disputes can grow legs of their own. In this case, you’ll want to loop in a legal expert that can ensure you get the best possible outcome.
We specialise in providing cost-effective legal solutions clearing your path to success, which means our bread and butter lies in crafting, reviewing, and dissecting commercial contracts. From T&Cs, to NDAs and commercial negotiations, we support the likes of Onfido, Multiverse, and Truelayer - ensuring they can build, break, or bolster their commercial relationships.
In need of support from commercial contract lawyers in the UK? Get in touch with our commercial contract team.