Contractual relationships are fundamental to any business. They connect you to your employees, customers and your suppliers, limit your obligations and define what you are entitled to. They offer you, banks and investors important assurances about the health of your business and the safety of loans and investments.
Making sure your contracts are fit for purpose is, therefore, crucial.
But this can be more challenging than it might seem.
All contracts involve a dance between the precision needed to give clarity about each party’s obligations and the flexibility needed to deal with the inherent messiness of the real world.
And they all come with sets of assumptions baked in about your business, your customers, your suppliers, the wider economy and the law, which may or may not remain accurate over time.
Commercial contracts
Given the changes and economic upheavals we have seen over the last two years, it is likely that your commercial contracts contain outdated assumptions and lack the flexibility to deal with recent changes.
The timeframes in which you are expected to supply certain goods or services to your customers might now be unrealistic, the value of the contract might no longer be commercially viable, the prices you pay might now be above the current market rate or you might feel you need additional protections in case of future lockdowns, for example.
Employment contracts
At the same time, employment relationships have changed significantly in many sectors, with large numbers of people working from home who had not done so until Covid struck, while sectors such as hospitality are seeing huge fluctuations in demand that make staffing needs difficult to protect.
As a result, you may wish to consider agreeing new contracts with existing staff or, if that is not feasible or desirable, with new starters going forward.
Commercial property leases
Changes in consumer demands and habits, as well as new ways of working may well have had an impact on your use of business premises.
For example, you may have found that home working has been effective and have reached the decision that you will not be bringing everyone back into the office.
If your lease is up for renewal in the short to medium term, you may wish to consider this by agreeing a shorter term or additional break clauses, for example.
If you operate a retail or hospitality premises, meanwhile, you might also want to make specific provision for future pandemics or to negotiate rent reductions.
Terms and Conditions
The considerations are broadly similar for your terms and conditions. You should consider what has changed in the last two years and whether you need any additional protection or specific provision for future pandemics.
What if I want to make a change?
The first step to take is to discuss this with the other party and to understand their needs. In many cases, changes in the wider economy mean it is in everyone’s interest to redraft a contract. In other cases, there may be some resistance and you may need to compromise or sell the benefits of a new deal.
You should also seek legal advice to ensure any new contractual arrangements are likely to function in the way you want them to.
Just a few hours reviewing your contractual arrangements could be crucial to safeguarding the future of your business in 2022.