A commercial contract review can help you understand exactly what your business is agreeing to before you sign.
Even an agreement that looks straightforward can contain provisions dealing with payment, liability, termination, intellectual property, renewal, restraints and other obligations that may have significant commercial consequences.
This guide explains what a lawyer may examine during a commercial contract review and what Australian businesses should consider before entering into an agreement.
Table of Contents
- What Is a Commercial Contract Review?
- What Types of Contracts Can Be Reviewed?
- Scope, Deliverables and Responsibilities
- Payment Terms and Fees
- Liability, Indemnities and Insurance
- Intellectual Property
- Termination, Renewal and Exit
- Restraints and Exclusivity
- How to Prepare for a Contract Review
What Is a Commercial Contract Review?
A commercial contract review involves examining an agreement to understand its legal effect and how the terms apply to your business.
A lawyer may consider:
- the obligations of each party;
- payment arrangements;
- timeframes;
- risk allocation;
- intellectual property;
- confidentiality;
- liability and indemnities;
- termination;
- renewal;
- restraints;
- dispute provisions; and
- how the agreement fits with the commercial arrangement you intend to enter into.
A review is more than proofreading. It considers what the provisions mean legally and how different clauses interact.
It does not guarantee that the other party will agree to changes or that the transaction will produce a particular commercial outcome.
What Types of Contracts Can Be Reviewed?
Commercial contract reviews can cover many different business agreements.
Examples include:
- service agreements;
- supplier agreements;
- contractor agreements;
- distribution agreements;
- licensing agreements;
- Master Services Agreements;
- Shareholders Agreements;
- Partnership Agreements;
- commercial leases;
- confidentiality agreements;
- credit applications;
- business sale agreements; and
- other commercial contracts.
The issues that matter most will depend on the particular document and transaction.
See our business contract services for more information.
Scope, Deliverables and Responsibilities
One of the first things to check is whether the agreement accurately describes the commercial arrangement.
Consider:
- what goods or services are being supplied;
- what each party must do;
- the required standard of performance;
- deliverables;
- deadlines;
- dependencies on the other party;
- approval processes; and
- who has authority to give instructions.
If the agreement contains schedules, statements of work or other incorporated documents, check that they are consistent with the main agreement.
A mismatch between the commercial understanding and the written contract can create problems later.
Payment Terms and Fees
Payment clauses should clearly explain when and how money is payable.
Relevant issues may include:
- pricing;
- deposits;
- invoicing;
- payment periods;
- expenses;
- GST;
- price increases;
- interest on overdue amounts;
- debt recovery costs;
- disputed invoices; and
- rights to suspend services for non-payment.
The payment provisions should also make commercial sense for the way the business operates.
Businesses supplying customers under their own standard terms may also want to consider our Terms and Conditions services.
Liability, Indemnities and Insurance
Liability provisions determine how particular risks are allocated between the parties.
A review may consider:
- limitations of liability;
- liability caps;
- excluded losses;
- indemnities;
- warranties;
- insurance requirements; and
- circumstances in which exclusions or limitations do not apply.
The meaning of these provisions depends on their exact wording and the rest of the agreement.
An indemnity, for example, should not be assessed simply by looking at the heading. The circumstances in which it applies and the losses it covers need to be considered.
Intellectual Property
Intellectual property provisions can be particularly important where one party creates material for the other.
This can include:
- software;
- designs;
- logos;
- marketing material;
- documents;
- photographs;
- systems; and
- other business material.
Paying someone to create material does not necessarily mean intellectual property ownership automatically transfers.
The contract should clearly address:
- ownership of existing intellectual property;
- ownership of new intellectual property;
- assignment of rights;
- licensing rights;
- permitted use; and
- rights that continue after the agreement ends.
You can read more about our trade mark and intellectual property services.
Confidentiality
Commercial agreements often contain confidentiality provisions dealing with sensitive business information.
A review may consider:
- what information is confidential;
- who may access it;
- the purposes for which it can be used;
- permitted disclosures;
- how long confidentiality obligations continue; and
- what happens to confidential information when the arrangement ends.
The provisions should be appropriate for the information being shared and the commercial relationship.
Termination, Renewal and Exit
Businesses should understand how an agreement can end before signing it.
Relevant provisions may deal with:
- termination for breach;
- termination for non-payment;
- termination for insolvency;
- termination without cause;
- notice periods;
- automatic renewal;
- minimum terms;
- early termination fees;
- outstanding payments;
- return of property;
- continuing confidentiality obligations; and
- other rights that survive termination.
If an agreement renews automatically, make sure you understand when notice must be given if you do not want it to continue.
Restraints and Exclusivity
Some commercial agreements contain provisions restricting what a party may do during or after the contract.
These can include:
- non-compete restraints;
- non-solicitation provisions;
- exclusive supply arrangements;
- exclusive territories; and
- restrictions on dealing with competitors or customers.
The effect and enforceability of restraint provisions depend on the drafting and circumstances.
Businesses should understand the practical effect of these restrictions before agreeing to them.
Variations and Changes
A contract should explain how its terms can be changed.
Consider:
- whether changes require written agreement;
- whether one party has a unilateral right to change particular terms;
- how changes to scope are approved;
- how additional fees are calculated; and
- who within each organisation has authority to approve changes.
This can be particularly important in long-term services arrangements where the scope may change over time.
Dispute Provisions
Even where Rise Legal does not undertake disputes or litigation, it is still important to understand how a contract says disputes are to be managed.
A commercial agreement may contain provisions dealing with:
- internal escalation;
- negotiation;
- mediation;
- expert determination;
- court jurisdiction; and
- governing law.
A contract review can explain what those provisions require if a disagreement later arises.
How to Prepare for a Commercial Contract Review
Providing clear instructions helps the lawyer focus on the issues that matter most to your business.
Before the review, gather:
- the complete agreement;
- all schedules and attachments;
- any documents incorporated by reference;
- variations or amendments;
- relevant correspondence;
- your signing or renewal deadline; and
- a short summary of the commercial arrangement.
It can also be useful to identify:
- your main commercial priorities;
- clauses you do not understand;
- terms you are concerned about;
- changes you would like to request; and
- anything discussed commercially that you cannot see reflected in the written agreement.
You do not need to translate your concerns into legal terminology. Explaining the commercial issue in plain English gives your lawyer useful context.
Reviewing Before You Sign
Ideally, a contract should be reviewed while you still have an opportunity to consider the terms and raise issues with the other party.
Legal advice can help identify provisions you may want clarified or amended.
However, a review does not guarantee that the other party will agree to a proposed change.
How Rise Legal Can Help
Rise Legal assists Australian businesses with commercial contract reviews and related business agreements.
Our work can include:
- reviewing commercial contracts;
- explaining legal obligations;
- identifying provisions requiring clarification;
- suggesting amendments where appropriate;
- drafting business contracts;
- contractor agreements;
- Shareholders Agreements;
- Partnership Agreements;
- Terms and Conditions;
- commercial leases; and
- business sale and purchase agreements.
Rise Legal provides fixed-fee proposals for defined legal work so the scope and professional fee are agreed before work begins.
Rise Legal focuses on commercial and business law and does not undertake disputes or litigation.
Contact Rise Legal to request a fixed-fee proposal for your commercial contract review.
Frequently Asked Questions
What does a commercial contract review include?
The scope depends on the agreement and the questions you need answered.
A review may consider obligations, payment, liability, indemnities, intellectual property, confidentiality, termination, renewal, restraints and other provisions relevant to the arrangement.
When should I have a business contract reviewed?
A review can be useful before signing, renewing or varying an important commercial agreement.
It may also be appropriate where an existing arrangement has changed and you want to understand how the current wording applies.
Can a lawyer review a contract before I sign it?
Yes.
Having a proposed contract reviewed before signing gives you an opportunity to understand the terms and identify questions or proposed amendments before deciding whether to proceed.
Can a lawyer negotiate changes to a commercial contract?
Depending on the agreed scope, a lawyer may assist with proposing or negotiating amendments.
The other party is not required to accept every requested change.
How long does a contract review take?
The time required depends on the length and complexity of the agreement, associated documents and the scope of advice required.
If you have a particular signing deadline, provide that information when requesting a proposal.
How much does a commercial contract review cost?
The cost depends on the agreement and agreed scope of work.
Rise Legal provides fixed-fee proposals for defined commercial contract reviews so the professional fee and scope are confirmed before work begins.
Should I send the whole contract to my lawyer?
Yes.
Provide the entire agreement, including schedules, annexures, attachments and documents incorporated by reference where available. A clause can be affected by provisions elsewhere in the contract.
Article by
Helen Kay, Principal Lawyer, Rise Legal
Helen Kay is the Managing Director and Principal Lawyer at Rise Legal, an Australian commercial and business law firm advising business owners, franchisors and franchisees across Australia. Helen practises in commercial law, franchising, business contracts, business sales and purchases, trade marks and related business law matters.
Disclaimer
This article provides general information only and does not constitute legal advice. It does not take into account your specific circumstances. Laws and regulatory requirements may change, so you should obtain legal advice relevant to your situation before acting on the information contained in this article. Liability limited by a scheme approved under professional standards legislation.
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