As the UK starts to cautiously ease its way out of lockdown, many businesses will be starting to assess what the next 12 months is likely to have in store. If you expect your business to suffer a downturn, one of the things that you should consider urgently is how much your existing contractual commitments are costing you and if you can terminate any of those commitments.
Your contract commitments might include ongoing services with a fixed minimum period, or possibly an order for large and expensive plant or equipment which you no longer need with a reduced amount of work. There are various points in the contracts you might want to consider that may help you terminate.
Termination for convenience
This is not a common clause but some contracts may permit you to terminate a contract earlier than the agreed expiry date without having to give a reason. Alternatively, some contracts may allow you to terminate (or reduce the level of products or services purchased) if you can demonstrate a genuine reduction in business need (i.e. not just on a whim, but because your business has had a downturn).
Force majeure clauses exist in most business-to-business contracts and excuse a party’s non-performance of contractual obligations if caused by circumstances beyond that party’s control. These clauses can be quite narrowly drafted and are generally more commonly used to excuse non-performance (or delays in performance) from suppliers, but it is worth checking the wording of the clause to see if anything in the contract will help you as a customer.
Breaches by the supplier
Most contracts will include provisions allowing a customer to terminate where a supplier has either committed a material breach of contract (or sometimes even a series of minor but persistent breaches). Usually you will be required to give some opportunity for the supplier to remedy the breach, if it can be remedied. You should consider the supplier’s recent contractual performance to see if you can identify any serious failings and see if the termination for breach provisions may help.
This is not a contractual provision, but a doctrine of English common law. If the very purpose of the contract has been removed by a change in circumstances, then you may be able to argue that the contract is frustrated and the contract can be terminated. This is a difficult doctrine to use and is rarely relied upon but in certain circumstances this may be of help.
If all else fails
If you cannot find anything in the contract to help and frustration doesn’t apply, it is sometimes worth picking up the phone to your suppliers to see if a deal can be done. If a supplier holds you to the very letter of a contract, then it’s almost certain that you’ll never deal with that supplier again once the contract is finished. Many suppliers will be conscious of this fact and keen to keep your long-term custom so may be willing to agree changes to the contract to lessen the burden on your business. If your suppliers are less sympathetic then it’s always worth you pointing out the likely consequences for them of their unreasonable behaviour.
When you’re negotiating any new contracts, you may wish to give some thought to Coronavirus and including certain provisions to help you.
If you want help reviewing any of your existing contracts or any new contracts you’re currently negotiating, please do not hesitate to contact Matt Worsnop on 0116 281 6235 or by email on email@example.com.