Commercial Contracts
Commercial contracts are the backbone of any successful business. They outline the terms of the agreement, ensure legal protection, and help manage relationships with clients, suppliers, and partners.
At Lawhive, we offer expert assistance to help you create, review, and manage your commercial contracts.
Our network of commercial lawyers provides clear, practical advice tailored to your business needs at up to 60% less than high-street firms.
Contact us today for a free case evaluation and fixed fee quote to work with a fully regulated and vetted commercial solicitor.
What is a commercial contract?
A commercial contract is a legally binding agreement between two or more parties that outlines the terms and conditions of a business arrangement.
Common types of commercial contracts
Commercial contracts come in many forms. Some of the most common are:
Type of Commercial Contract | Description |
|---|
Sales Contracts | Outline the terms for the sale of goods or services. |
Service Agreements | Specify the terms under which one part will provide services to another. |
Employment Contracts | Set out the terms of employment, including job responsibilities, salary, benefits, and termination conditions. |
Non-Disclosure Agreements | Protect confidential information shared between parties. |
Lease Agreements | Outline the terms for leasing property or equipment. |
Partnership Agreements | Define the terms of a business partnership. |
Franchise Agreements | Set out the terms under which the franchisor grants a franchisee the rights to operate a business under the franchisor's brand and system. |
Key elements of a commercial contract
Every commercial contract should include:
Offer and acceptance
A commercial contract begins with an offer from one party and the acceptance of that offer by another.
The offer must be unequivocal, stating exactly what is being proposed.
Acceptance must mirror the terms of the offer exactly; otherwise, it may be considered a counteroffer rather than an acceptance.
This mutual agreement forms the basis of the contract.
Consideration
Consideration is what each party agrees to give or do for the other. It can be a payment, a service, or an agreement to refrain from a particular action.
For a contract to be legally binding, there must be consideration from both sides.
Intention to create legal relations
Both parties must intend for their agreement to be legally binding. In commercial contracts, this intention is generally presumed. Howerver, it's important to clearly state this intention within the contract to avoid ambiguity and ensure both parties are committed to the terms.
Legal capacity of parties
The parties agreeing must be of legal age and sound mind, and not under duress or undue influence.
Companies must also make sure that the person signing on their behalf has the authority to do so.
Clarity and certainty of terms
A well-drafted commercial contract should have clear and certain terms, detailing the rights and obligations of each party. This includes payment terms, delivery schedules, and any other relevant details.
What should a commercial contract include?
Every commercial contract should:
Identify all parties involved;
Outline the purpose and background of the agreement;
Clarify the meaning of specific terms used in the contract;
Outline the payment structure and address late payment penalties and discounts for early payment;
Specify the duties and responsibilities of each party including timelines, quality standards, and the process for accepting or rejective deliverables;
Detail the scope and limitations of warranties and indemnities;
Clearly define limitation of liability;
Outline the conditions under which the contract can be terminated by either party;
Specify the methods for resolving disputes.
What are indemnity clauses in commercial contracts?
Indemnity clauses are a way of shifting risk from one party to another so that, if something goes wrong, the indemnified party is protected financially.
For example, if one party fails to meet their contractual obligations, the indemnity clause might require them to compensate the other party for the resulting losses.
Indemnity clauses in commercial contracts are importance as they ensure that the indemnified party is compensated for certain losses and clearly define which party is responsible for which risks.
Further, a well-drafted indemnity clause can be enforced if a dispute arises.
Does a commercial contract have to be in writing?
A commercial contract doesn't have to be in writing to be legally binding unless it is:
A contract for the sale or transfer of land;
Certain consumer credit agreements;
A guarantee (a promise to pay another person's debt).
In any case, a written contract provides clear evidence of the agreement and sets out the terms in detail, which can reduce the risk of misunderstandings and disputes.
A written contract also makes it easier to enforce the agreement in court if necessary.
What's the process of creating a commercial contract?
1. Initial discussion and agreement
The process begins with both parties discussing the terms of the agreement, such as the scope of work, payment terms, and timelines.
2. Drafting the contract
Once the basic terms are agreed upon, the next step is to draft the contract, including important clauses such as warranties, indemnities, limitation of liability, and dispute resolution procedures.
A solicitor can assist with this.
3. Reviewing and negotiating
After the initial draft is prepared, both parties should review the contract carefully.
If any terms are unclear or unfavourable, parties should negotiate to reach a mutually acceptable agreement and make the necessary changes to the contract.
If the initial draft is made by the other party, it's wise to have your solicitor review the contract to make sure it meets your legal and business needs.
4. Finalising the contract
Once both parties are satisfied with the terms, they must sign the contract to make it legally binding.
You should keep a copy of the signed contract for your records and make sure it is securely stored.
5. Implementation and monitoring
After the contract is signed, both parties should fulfill their obligation as outlined in it.
You should also consider regular reviews or audits of your contracts to make sure they stay relevant and effective.
How to negotiate a commercial contract
Here are our commercial lawyers' top tips for negotiating a commercial contract:
Clearly define what you want to achieve;
Know your boundaries and what you're willing to compromise;
Listen carefully to the other party's concerns and requirements;
Don't rush the process;
Base your arguments on objective data and standards;
Respect the other party's viewpoints and negotiate in good faith;
Involve legal experts to help with complex clauses.
How do you make sure a commercial contract is legally binding?
To be legally binding, a commercial contract must comply with the UK's basic principles of contract law. These include:
In addition to meeting the basic principles of contract law, your contract must comply with relevant statutory requirements, including:
Unfair Contract Terms Act 1977: Protects against terms that seek to limit liability unfairly or impose onerous obligations on one party.
Consumer Rights Act 2015: While primarily focused on consumer contracts, this Act also impacts business-to-business agreements, especially when one party is significantly weaker or less knowledgeable.
To make sure your commercial contract is enforceable, you should also make sure it is:
Drafted with clear, specific terms;
Made in writing;
Signed by all parties involved;
Reviewed by a commercial contracts lawyer to ensure it meets all legal requirements and protects your interests.
Making sure your commercial contracts are legally binding protects your business from disputes and legal challenges.
Can a commercial contract be amended?
As your business evolves, your contracts may need to be adjusted to reflect new circumstances or changes in your business relationships.
Variations and amendments allow you to modify specific terms without renegotiating the entire contract.
To do this, it's important to clearly specify which terms are being amended and how they are being altered. Any changes should be documented in writing and signed by all parties involved.
It's also worth having a solicitor review any amendments to ensure they are legally sound and enforceable.
Can you cancel a commercial contract?
You might be able to cancel a commercial contract if:
The other party doesn't fulfill their obligations;
Both parties agree to cancel the contract;
The contract includes termination clauses;
The contract was entered into based on false information or fraud;
If an unforeseen event occurs that makes it impossible to fulfill the contract.
If you believe you have grounds to cancel a contract, consult with a solicitor before taking action and make sure you follow the correct legal process.
For example, if the contract requires notice of termination, make sure to provide it in the manner specified (such as in writing) and within a certain time frame.
This is important because, if you cancel a contract without valid grounds or in the wrong way, the other party may claim that you are in breach of contract.
What happens if a commercial contract is breached?
Even with well-drafted contracts, commercial contract disputes and breaches can happen.
If they do, it's important to address these issues sooner rather than later to minimise disruption to your business.
Usually, communicating with the other party is enough to resolve the issue amicably. However, if a resolution can't be reached, you should consult a solicitor to explore your legal options, such as mediation, arbitration, or as a last resort, litigation.
How can a solicitor help with commercial contracts?
A commercial contracts solicitor can help draft clear, legally binding contracts and review existing agreements for potential issues.
In particular, they can help identify and mitigate risks, protecting your business from legal challenges or disputes.
How Lawhive can help
At Lawhive, our expert network of commercial contract solicitors offers clear, practical advice on all aspects of commercial contract management and review.
Contact us today for a free case evaluation and fixed-price quote for the services of a specialist lawyer to help with commercial contract drafting, reviews, or disputes.