Entering into commercial agreements is an everyday occurrence for many businesses. It is therefore crucial for business owners and management teams to understand exactly what obligations they are signing up to.
Typically, many of the contracts a business will enter into will reflect its offering and requirements and therefore be of a similar nature (for instance, supply of services and/or supply of goods agreements). It is however important to recognise that where perhaps similar in nature, the terms of contracts can vary considerably and may contain some unfamiliar terminology.
A common term found within commercial contracts is the phrase ‘…. is of the essence’. This phrase is commonly used for delivery, payment or completion obligations. Although commonplace in the commercial world this is a phrase which is frequently misunderstood by parties entering into contracts. Many people mistakenly believe that the inclusion of a ‘time is of the essence’ phrase, simply means that it is important to adhere to the contractual timelines.
From a legal perspective, if an obligation is ‘of the essence’ this means it is a condition of the contract. Practically, the implications of this phrase can therefore be severe. If you are one minute late for performing obligations it can entitle the other party to terminate the whole agreement and claim damages. Alternatively, if a time is of the essence clause is included for exercising a contractual right, then if the party does not exercise the right within the specific timeframe the right will be lost.
This is just one example of how unfamiliar language can trip up the unknowing. For this reason, it is always advisable to seek professional advice in order to be absolutely certain what obligations and restrictions you may be signing up to.
BHW Solicitors are happy to review and advise on all commercial contracts. If you would like to discuss any form of commercial agreement or contract review then please do not hesitate to get in touch with Alex Clifton on 0116 281 6232 or email firstname.lastname@example.org who is happy to have a free no obligation discussion.