Most business owners sign contracts without reading them properly. Most disputes could have been avoided if someone had read the contract properly before signing. Here is a structured way to review a commercial contract before you commit.
Start With What the Contract Is Actually Doing
Before you read a single clause, ask: what is this contract for? What obligation is each party taking on? What does good performance look like, and what happens if either party fails to perform? Understanding the commercial substance of the deal before you read the legal document makes it much easier to identify provisions that do not match the deal you think you have agreed.
The Payment Provisions
Find the payment clause and read it carefully: What is the price, and is it fixed or variable? When is payment due — on invoice, 30 days after invoice, on delivery, on completion of milestones? What are the consequences of late payment? Does the contract allow the supplier to charge interest, suspend services, or terminate? Is there a right to withhold payment if there is a dispute? Many contracts exclude this right.
In commercial contracts between businesses, the Late Payment of Commercial Debts (Interest) Act 1998 applies as a default — but many contracts exclude or modify this. Check whether your right to interest on late payments is protected.
The Liability and Indemnity Provisions
The liability clause is typically the most heavily negotiated and the most consequential. Look for:
- Limitation of liability — most commercial contracts limit the supplier's total liability to a fixed sum (often the contract value or one year's fees). Is this cap reasonable given the risk you are taking on?
- Exclusion of consequential loss — this is standard, but check whether it is mutual (both parties) or one-sided
- Indemnities — an indemnity is a promise to compensate for a specific type of loss. They are broader than damages and typically sit outside any liability cap. Read every indemnity carefully — what are you indemnifying against, and is it insurable?
The Intellectual Property Provisions
Who owns the intellectual property created during the contract? In a contract for software development, marketing services, design, or any other creative or technical work, this is critical. The default position under UK law is that the creator owns the IP — unless the contract says otherwise, or the work is created by an employee in the course of employment.
If you are commissioning work, ensure the contract includes an assignment of all IP in the work to you — or at least an exclusive, perpetual licence. If you are a supplier, be careful about what you are assigning — you may be giving away IP that you use across many clients.
Termination Rights
How can each party end the contract? Look for:
- Notice periods — can you exit on reasonable notice, or are you locked in for a fixed term?
- Termination for cause — what constitutes a breach serious enough to justify immediate termination?
- Termination for convenience — can either party end the contract without cause? If so, what payments are due?
- Consequences of termination — what happens to work in progress, prepayments, and licences when the contract ends?
Governing Law and Dispute Resolution
Which law governs the contract? For UK businesses contracting with UK counterparties, English law is standard. Where there is an international dimension, the governing law clause matters.
What is the dispute resolution mechanism? Litigation, arbitration, or mediation? Arbitration clauses in B2B contracts are enforceable — if you agree to arbitrate, you are giving up your right to litigate in the English courts.
Bonsai Law reviews and drafts commercial contracts for founders and owner-managers across the UK. Send us the contract before you sign — that is when problems are cheapest to fix.
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