A successful store is told by its landlord that its lease is being terminated. A supplier tells a factory owner that raw material prices are increasing. An insurance adjuster tells a policyholder a claim is not covered. Each of these real life situations surprised a business owner and the business suffered. Yet these problems could have been reduced, or avoided, had the owners reviewed and updated their business contracts.
Contracts are part of every business. Leases, supply contracts, employment agreements, insurance policies, even standard invoice terms, are all examples of commonly used business contracts. Often, contracts are filed in a cabinet and never looked at again — until a problem arises.
But there is a better approach. Careful business owners avoid problems by periodically reviewing and updating their contracts. This is because changes take place over time in laws, bargaining power and other factors. Terms that were beneficial when a contract was signed may no longer be helpful. Unfavorable terms that were accepted in the past may now be able to be renegotiated.
Reviewing old contracts can also reveal overlooked benefits. For example, a gas station site was leased from an oil company. The lease was signed long ago. Near the end of the term, the gas station owner reviewed the lease and saw a forgotten provision — an option to buy the real estate at an attractive price. The tenant almost lost the benefit of the option. Had he not reviewed the lease, this valuable option would have been lost.
There are many stories of key benefits lost, and unpleasant surprises suffered, which could have been avoided by reviewing contracts. Therefore, it is wise for business owners to review their contracts from time to time and update them if needed. Here are key elements to look for:
Are the parties to the original contract still the right parties?
Businesses often go through ownership changes and as a result a new entity becomes the owner. When this happens to either party to the contract, it may be necessary to update the contract so that it properly reflects the current ownership.
Has the contract expired?
Often parties work together even though their contract expired long ago. It may benefit you to get the contract formally renewed.
Is pricing still sensible?
Review of older contracts often reveals outdated pricing. If you are a buyer whose business has grown, you may now be able to negotiate lower prices. If you are a supplier, it may be time to raise your prices.
Are business dynamics different so that a better agreement can be negotiated?
Your bargaining power may have changed, so that now you can require more beneficial terms in contracts with customers, suppliers or others.
Does the other party have a right to terminate or impose other changes you can avoid by updating the contract?
Make sure you know what rights you and the other side can exercise, and when. If you are not satisfied with these rights, consider trying to update the contract.
These are just a few areas to examine in reviewing and updating contracts. By reviewing business contracts periodically, your business will reduce unpleasant surprises and benefit by being aware of rights and obligations that could otherwise have been overlooked.
Contact an attorney at Triscaro & Associates today. Please call us for all your legal needs. We offer a full range of legal services to individuals, families and businesses, including personal injury, estate planning, real estate, family law and business matters. We are dedicated to providing the highest quality legal services at a reasonable cost.