10 things to check when reviewing a commercial contract

Commercial contracts are key to establishing a profitable and stable business relationship. They set out the terms on which two or more parties will trade and, ultimately, seek to avoid a dispute further down the line. However not all contracts are created equally and before signing anything (or starting work) it’s important to review the terms and conditions carefully.

Obviously, the whole document needs a good read (and you would expect us to say that) but the most common problem areas to look out for are as follows:

1. Parties: Check that the correct parties are listed in the contract. Is the full legal name used? If a company, is the company number included and are they still trading on Companies House? And do you have their address? The same goes for you, if you want to rely on the benefits of the contract make sure you are listed as the correct party (full company name, etc).
2. Grant and consideration: Most contracts have a grant clause at the start, this usually grants one party some form of right, e.g. a licence, assignment, ability to purchase etc etc. However, for a contract to be valid there needs to be some form of consideration, sometimes this is nominal (e.g. £1) and sometimes this is material. However, make sure there is something and, if it’s limited, consider executing the agreement as a Deed instead.
3. Termination: This is a biggie. Generally speaking, there are two ways to terminate a contract early, either for breach (i.e. one party has failed in its obligations) or for convenience (i.e. one party, for no specific reason, wishes to end the agreement, normally subject to a notice period). Make sure you’re crystal clear on what these termination provisions are and carefully consider whether they’re sufficient to allow you the flexibility you’ll need should things not work out.
4. Warranties and indemnities: This comes down to the promises that you’re expecting in the contract (to give or receive) and the repercussions that might exist if these aren’t delivered. A common example in the context of IP agreements would be a warranty that the work being provided doesn’t infringer the IP rights of third parties and an indemnity to recompense any subsequent infringement claim.
5. Limitation of liability: Look out for a clause on this and consider if your counterparty is still being held properly liable for a breach. Typically, remote damages will be excluded and sometimes a financial limit will be set to possible claims.
6. IP: You would expect us to mention this. Make sure the contract is clear on IP ownership, will this change as part of the dealings or stay the same? Is that what you anticipated? Are their proper controls in place to protect you over the long term? And are you getting the permissions you need to fulfil your obligations under the contract?
7. Confidentiality: This should feature in almost every type of commercial contract. Who’s keeping what secret and for how long? Make sure that you can work within the restrictions and that your counterparty isn’t able to give away your commercial secrets.
8. Boilerplate provisions: These are also common to every properly drafted contract and cover areas such as severance, entire agreement, partnership, third parties and waivers. Each of these clauses has a valid reason for being included and it’s important to ensure that none of the standard boilerplate provisions have been excluded.
9. Governing law: This is the law that governs the interpretation of the contractual clause. Ideally you want this to be your home jurisdiction (e.g. the laws of England & Wales) so that your local lawyer can advise on the contract without needing to take advice from overseas.
10. Jurisdiction for disputes: This is subtly different from the above, it’s not the law of the contract but the place that disputes over it will be fought. As with the above, you want this to be your home territory (e.g. the courts of England & Wales) to avoid the cost and difficultly of having to litigate overseas.

So, there we have it, your top 10 things to check when reviewing a commercial contract. Of course, if you would rather take some expert legal advice before agreeing to a binding contract, our expert lawyers are on hand to assist. Just use the contact form to arrange a consultation.