April 2011 – Commercial contracts: insurance policies for business

Business owners often dismiss the need for formal contracts with their customers or suppliers, seeing them as a barrier to getting on with their day-to-day activities. But maybe if they viewed them as a form of insurance their opinion would be slightly different.

Business people often say that they don’t have or even need contracts. What they usually mean is that they don’t have formal written contracts. Instead they proceed on the basis of verbal negotiations or perhaps exchanges of email. That doesn’t mean however that there isn’t a contract in place. Just because it isn’t formal doesn’t always mean a contract hasn’t been made.

For a contract to exist only a few basic factors need to have been agreed. These include what each party expects to do as regards supplying or receiving specified products or services, the price, the intention to be bound by the agreement and the agreement being carried out. So if you’ve agreed these points on the phone or by email – you might well have a contract!

What you don’t have however is full protection. Such an agreement for example is very unlikely to have covered in any detail things like what will happen if things go wrong, who is liable for the consequences of any delays, and so on.

Of course, there may be occasions when you make a commercial decision to take the risk and work without a formal contract. This approach is usually taken when working with a customer or supplier you are familiar with, on the basis that few or only minor problems may have been experienced previously. You proceed in the hope that this will continue to be the case or, if any problems arise, it will be possible to negotiate a mutually convenient way out. This is certainly one way of managing the commercial risk. It has the advantage of reducing possible time spent in initial negotiations and potential cost associated with drawing up a formal agreement, but does have some potential drawbacks. For example:

• If there are delays in delivery of products or a service to you – have you got any comeback against your supplier?
• Have you effectively limited your liability if you are the supplier and you fail to deliver on time or to specification – if not, how much do you stand to lose?
• What if your customer doesn’t pay on time – indeed did your informal contract even specify a timetable for payment?

Business owners are understandably keen to get on with a new deal and, in the current challenging economic climate when there is so much competition for each order, this is particularly the case. Provided all proceeds smoothly then all well and good, but if things should go wrong the result is likely to be more time-consuming and costly to resolve.

You wouldn’t run the risk of driving your car without insurance, would you? So why run the risk of running your business without the safety net of properly worded and negotiated contracts?

For advice on the wording of your commercial contracts or agreements or to discuss an agreement you are about to sign contact Sue Mann, Commercial Solicitor with Cousins Business Law on 0121 246 4437.    

It wasn’t an exciting budget, and it did contain some help for SMEs, but did it go far enough? The government is beginning to realise that sustained economic growth will need to come from the SME sector but should it do more to boost this vital sector?

The focus for the economy as a whole remains the reduction of the public sector deficit. This is essential to create the right economic environment. It should create more market stability and keep interest rates as low as possible as well as rebalance the economy to the sectors that create real wealth.

As far as business is concerned, the government appears to have heard the clamour for less regulation and has responded with a three-year moratorium on new domestic regulation for micro businesses. I would like to see a concerted effort to reduce regulation, rather than just freeze it, and somehow an effort to tackle the flood of regulation coming from Europe. Nevertheless, this will be a great help but should of course cover all small businesses and not just micro ones.

The measures to reduce fuel duty are helpful but don’t go far enough. If we want to build up the manufacturing sector, the government must realise that goods need to be moved from one place to another and that transportation costs are a real burden on these business.

Taxes on SMEs should be reduced as they are effectively a tax on growth and jobs. Therefore, the extension of the Small Business Rate Relief and the reduction in Corporation Tax is welcomed.

Perhaps the Federation of Small Business is correct when they said that the budget did not harm but won’t boost small business. In my view, small business will boost itself as long as the government works hard to create and maintain a business-friendly environment. I’m just not sure it has gone far enough.

Gary Cousins
Commercial Solicitor
(add your comments on this blog – tell us what the Government could have done to help your business)     

The temporary increase in Small Business Rate Relief has been extended by a further year to October 2012. Small Business Rates Relief is available to all businesses whose rateable value is less than £12,000.

This means that eligible businesses occupying one property with a rateable value of £6,000 or less will pay no business rates. For those with one property having a rateable value of between £6,000 and £12,000 there will be relief on a sliding scale from 100% to zero.

All SMEs entitled to this relief should contact their local authority to make a claim as this is not given automatically.

What are the conditions?

To qualify for the relief, businesses must apply to their local authority and confirm that:

• the sole or main property you occupy must have a rateable value of less than £18,000 (£25,500 in Greater London) and
• if you occupy any additional separately rated properties, each of these must have a rateable value of less than £2,600, and the total rateable value of all of the properties you occupy must be less than £18,000 (£25,500 in Greater London)

For businesses with a rateable value of between £12,001 and £18,000 (or £25,500 in London), there is no discount, but you will continue to be entitled to have the business rates bill calculated using the small business rate multiplier.

Please call Paul Harrison on 01604 456591 for further information.

The Budget and property owners
Now that the dust has settled after the Budget Commercial Property Solicitor Paul Harrison takes a look at the main implications for the property world…

Demolishing a building? Get planning permission!
A recent Court of Appeal decision means developers and business owners may need planning permission to demolish an old building as well as build a new one. Read more...

Bid to cut red tape on live music
The Government has given its support to a Private Members Bill which proposes to cut the red tape on live music in pubs which hold 200 or less. Read more…

How to avoid business rates on empty property
From 1 April 2011 many property owners and businesses will potentially be hit with a large increase in business rates for empty property. Property solicitor Paul Harrison explores how this can be avoided here.

Register of Health and Safety Consultants
A web based directory of approved and qualified health and safety consultants is now available online. Helpful for any organisation needing advice on how they comply with the latest health and safety rules for their industry.

Guide to varying employment contracts
A new online Guide produced by ACAS explains the implications of changing the terms of a contract. The guide looks at under what circumstances contract conditions can be changed and how this can be done.

Subscription

Cousins Business Law Update is published monthly.  An archive of back issues is held on our website – here.

If you no longer wish to receive Business Law Update you can unsubscribe here.

©2011 Cousins Business Law. All Rights Reserved. No unauthorised copying, extraction or other use is allowed except with our prior written permission.