Businesses enter into contracts and agreements every day, whether it is with suppliers, wholesalers, manufacturers, distributors, other businesses, clients or customers. Commercial arrangements can last for several years, however, this can mean that your original contract no longer sufficiently reflects your current commercial arrangement. This article explains some key reasons why it is important to regularly review and refresh your contracts.
1. Informal agreements
Many businesses put themselves at risk by making informal agreements or amendments to their contract without getting it in writing. Email communications or verbal agreements to alter aspects of commercial arrangements are common, however they should not be relied upon to ensure legal protection. Even if you have a good relationship with the other party to your contract, getting agreements in writing is crucial to ensuring you are legally protected if the relationship goes sour.
While verbal agreements can sometimes be enforceable, they can often be hard to prove and enforce. By having your contracts regularly reviewed by a legal professional, you can add in any informal amendments and ensure these are legally binding. This can also help you avoid unwanted, costly and time-consuming legal disputes with other parties to your contracts.
2. Increased protections
Increasing levels of legal protection can be another important reason for businesses to get their contracts refreshed. Particularly since the COVID-19 pandemic, many businesses have sought more protective clauses within their contracts to address unforeseen circumstances. For example, many retailers have adopted more detailed clauses to protect their business in the case of supply issues or staff shortages due to natural disasters or economic crises.
Another benefit of having your contracts regularly reviewed is that contracts can be tailored towards your current business needs and priorities. For example, some businesses have a particularly strong intellectual property portfolio (such as trade marks, trade secrets and design rights), and accordingly require more detailed clauses in their contracts to protect these rights.
3. Unfair contract terms
Finally, businesses should get their contracts reviewed regularly for any unfair contract terms. While contracts should protect your business and help limit your liability, including unfair contract terms can put your business at risk for court action.
A term is considered unfair if it:
- Would cause a significant imbalance in the parties’ rights and obligations;
- Is not reasonably necessary to protect the legitimate interests of the party who benefits from the term; and
- Would cause financial or other detriment to a party if relied upon.
Unfair contract terms are void and unenforceable. This means that they are not binding on the parties to the contract. The rest of the contract will still apply and bind the parties to the extent that it can operate without the unfair term.
- Retailers should get their contracts regularly reviewed and refreshed to formalise any verbal commitments, increase and tailor their protections, and ensure they are not breaching the law on unfair contract terms.
- Reviewing and drafting of contracts should be done by a legal professional.
Gladwin Legal are experts in contract law and have extensive experience in advising businesses. If you require assistance in drafting or reviewing your policies or understanding your legal obligations please contact us at or 1300 033 934.
This article was written by Ruth Ong.