Raworths LLP
COVID-19: Fit for purpose – terms of business in lockdown and beyond COVID-19: Fit for purpose – terms of business in lockdown and beyond

News / Articles

Apr 20

COVID-19: Fit for purpose – terms of business in lockdown and beyond

Written by Simon Morris
Managing Partner

DDI: 01423 724622
M: 07944 443943
E: simon.morris@raworths.co.uk

The challenges faced by all businesses as they battle to operate (or merely preserve) their business in the current climate have highlighted that the standard terms we used to trade on pre-COVID are potentially not best suited to either the current circumstances or indeed the likely landscape as we gradually emerge from this crisis.

One heartening aspect to date has been the ‘all in this together’ attitude of many businesses when it comes to being flexible around supplier difficulties, delivery timings and payment terms etc.  However, as furlough comes to an end, deferred tax becomes payable and loan repayments kick in, then the increased strain on cash flows will put pressure on this goodwill and it will be important for all sides to have clarity as to the contractual terms they are trading on.

Standard Terms – If you have standard terms then it is a good idea to review them to see if there are changes that could be made, suitable for not only the current circumstances but also to provide flexibility for likely issues going forward.  Some such areas for consideration would be:

  • ‘Force Majeure’ clauses (if they are to be used then it is worth them specifically detailing pandemics and thought should be given as to whether ‘foreseeability’ provisions should be included)
  • Enhanced retention of title clauses (some of your trading partners will face solvency issues)
  • Delivery provisions (building in flexibility/options to charge for storage if delivery is not possible etc)
  • Payment terms (allowing for interim payments or more structured phased payments)

An overhaul of your standard terms is not your only option.  With so much uncertainty as to what the future will look like, flexibility will be key.

Variation of terms – such flexibility can be achieved on a contract by contract basis by specific variations to your standard terms tailored to that contract.  Again, the variations are likely to be around issues such as delivery, payment terms, delays and access to staff.  The key is to ensure the variations are effectively incorporated into the contract.  This means understanding your contracting process (when and how the contract is formed) and ensuring the variations are a clear part of that process.

Good relationships and communication will continue to be the vital components to successful trading but having a solid and clear legal framework sitting behind that can only help with assuring positive outcomes.

Published on 27 April 2020

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