Why keeping contracts up to date is important

It’s sensible and best practice for business owners to have contracts professionally prepared.

But when was the last time they were updated to reflect any changes in the law? Stuart Price takes a look at where a commercial lawyer lends support.

Even if you own a company that historically has its contracts professionally prepared, contracts should be reviewed regularly to ensure they remain relevant and effective.

What is a business contract?

All businesses have contracts to cover their various business activities. Whether selling goods or providing services, they should have a set of terms and conditions that set out the responsibilities of both parties and dictate the terms upon which they expect to get paid.

Where a company is working with third parties, they may need a sales agency agreement or a distribution contract to grow the business in new territories. If it is developing new products, it needs to be able to identify, protect and monetise its intellectual property. Finally, if it is processing data, whether that of its own customers or another company whose data it is required to work with, a business will need data protection policies and working arrangements.

Contracts are unique

Every contract should be specifically tailored to meet the exact requirements of the business, and the deal in hand. Whilst every relationship has benefits, there will always be incumbent risks which should be identified and mitigated. A well drafted contract should be able to avoid most disputes from arising in the first place. But in the event they do, the contract should contain suggestions as to how the dispute might be resolved, or where a dispute cannot be resolved, to enable the parties to terminate the relationship.

Whilst every contract is different, there are certain common elements that should always be set out – credit terms, parties’ respective obligations, passing of risk and ownership of goods or intellectual property, dispute resolution procedures, limitations on liability to protect the business from expensive or uninsured claims, and governing law.

Contracts must also make provision for its termination, whether for breach or some other cause, and the consequences that might then arise from that breach. If the contracts the business is using do not at least cover these bases, then at some point you will come into difficulties that might otherwise have been easily avoided with a professionally written contract.

Intellectual property

Not everyone knows that many companies own intellectual property, as well as tangible property. Even a business that doesn’t operate in a technology sector will own some form of intellectual property in its trading name, style, or logo. This intellectual property needs to be identified so that steps can be taken to protect it.

Take a business name, for example. If it is unique, it may be possible to register it as a trademark, which will prevent any competitor from using that mark, or a similar mark, ever again, provided renewal fees are maintained.

Protection of intellectual property isn’t the end of the matter. It can also be used to generate income by licensing. This is when the business gives someone else permission to use the intellectual property in return for the payment of licensing fees or royalties on sales. It also will also enable a company to impose strict controls on how the other party to such transactions can use their intellectual property.

Changes in law

The law changes all of the time, and contracts should be reviewed regularly to make sure they are still relevant.

If you are still using terms such as ‘merchantable quality’ or referring to the ‘Distance Selling Regulations’ or the ‘Data Protection Act 1998’, it has clearly been some time since the contracts have been updated – we recommend some swift and early intervention, before a customer takes advantage.

More information

Stuart Price is a partner in Lodders’ Corporate and Commercial team.  He is an expert in commercial law and regularly advises clients on technology and media contracts, intellectual property matters, company secretarial and data protection issues.