Getting out of or varying business contracts

We work with businesses to help them manage contractual liabilities and stay afloat.  If you have agreed a business contract and are seeking a way out, options may include negotiating a termination of the agreement or possibly even taking the chance of breaching the contract having calculated the risks associated. A further possibility is that there is a technicality or process in the contract which means the contract cannot be performed and offers an exit opportunity,

We can advise you on the best available options. Contact us for rapid and effective advice to steer you through.

How to get out of a business contract

The main ways to seek to get out of a business to business agreement are :-

• Misrepresentation (false statement inducing agreement)
• Mistake (fundamental error about the contract)
• Duress / Undue Influence (consent not freely given)
• Illegality (contract involves unlawful purpose)
• Frustration (unforeseen event makes performance impossible/radically different)
• Repudiatory Breach (serious breach by the other party)
• Lack of Capacity (party legally unable to contract)
• Lack of Consideration or Formality (agreement not legally binding)
• Mutual Agreement (rescission by consent)
• Renegotiation / Variation of terms
• Settlement (compensation to exit early)
• Waiver (other party agrees not to enforce rights).

Negotiating exit from contract

If either or both parties decide that varying the contract is a better option, there are some key issues and clauses to be vigilant about. These include :-

• Timing - almost always a key issue in contracts. In most contracts, timing of delivery and possible consequences of non-compliance are vital clauses. Any agreement to extend time should be very carefully thought through and drafted.
• Payment terms - cash flow is a key consideration at the best of times but in hard economic conditions it is business critical. Normal rules for your trade or industry may need to changed, such as payment up front as a variation.
• Possible ability to review and terminate without sanctions at future agreed milestones or dates - in an uncertain environment, if a contract is to be varied by consent, it's important to comprehensively look at all angles and likely scenarios so that you don't over commit or lose rights you need if the pandemic goes on for a long period.
• Reservation of rights - if the other party is already in breach of the contract and requests that you do not enforce or terminate, care is needed to reserve your rights in the future and not to waive the breach of contract.
• General negotiating position - it may be that 1 party needs the contract to continue more than the other and so relative negotiating positions need to be considered and where an agreement to vary is negotiated, to document it properly.

Take the risk of breaching the contract?

The usual position is that a significant breach of contract may give the innocent party the right to claim damages and treat the contract as terminated. To terminate the contract, the innocent party must notify the party in breach that they will treat the contract as terminated.

This is rather confusingly referred to by lawyers as accepting or waiving the breach.  If the contract is not terminated, both parties will remain bound by its terms with potential rights to claim damages for the breach (although it may be argued that if the breach has been waived the right to claim damages).

In the coming months, it is likely that many commercial contracts will be delayed or altered due to the recession. In many cases, this alteration will not be formally negotiated, but will be inferred from the behaviour of the parties.

Mitigation of loss

Even if a party is clearly in breach of contract, the other party is under a duty to mitigate their losses.

This is a complex area which brings together commercial and legal considerations. If you are in any doubt you should seek legal advice. As well as exploring the application of force majeure and frustration, legal advisors can help you to mitigate losses under contract.

How we can help

We are highly experienced contract and commercial lawyers. Speed and agility are likely to be more important than ever. As a niche firm we can provide the services you need.

Please get in touch. 020 7438 1060.