By Ben Hicks
Contracts make the world go around. They govern everything from buying a house to your employment terms and even how you use social media sites like Facebook. Sometimes, the process of signing a contract is a very deliberate event, such as when you close on the purchase of a house and take on a mortgage. On the other end of the spectrum, executing a contract can be as easy and seemingly unintentional as accessing a website.
While we often breeze through contracts in our personal lives – sometimes to our peril – it is vital that businesses pay attention to not only the high-level terms in their contracts that structure the overall business relationship between the parties, but also what is commonly known as “boilerplate” or “the fine print.” Business owners typically understand the need to review the body of an agreement to assess the appropriate performance obligations of the respective parties, as well as the pricing structure and duration of the agreement. All too often, however, business owners focus solely on these operative clauses, which outline what will happen in an ideal world where all work is perfectly performed, and flawless goods are delivered on time and within budget, and all payments are received in full as and when expected.
But we know that business relationships rarely unfold exactly as parties to a contract expect, often with negative consequences for either or both parties. The remaining sections and clauses, those toward the end of the contract that too frequently go unexamined by business owners, are where the rubber hits the road when working situations go awry or simply need to change.
In this article series, we will be examining several typical boilerplate provisions that are found across a normal set of business contracts commonly used in small and mid-market companies. Today, let’s talk about the notice provision. The notice provision of a contract governs communications between the parties and establishes the mechanics that are necessary for a particular communication to be effective. The notice provision is tied conceptually to other provisions of a contract that require notice to be provided for certain actions to take place or so the parties can stay informed about the status of their business relationship.
Typical examples of situations that require notice are (1) when a contract is nearing its expiration but has language stating that one or both parties can renew the contract by providing notice to the other party, or (2) when one party has breached the terms of a contract and the other party has a right to terminate (or otherwise alter the terms of the business relationship) by providing notice to the breaching party. While the language setting forth these renewal or termination rights may seem straight forward, failure to fully comply with the notice provision can render an attempt to exercise these rights ineffective and could result in parties losing benefits and protections that they may have specifically negotiated for when the contract was drafted.
Notice provisions contain language identifying proper methods of giving notice – by in person delivery, email, fax (yes, contracts still frequently allow notice by fax), registered mail, overnight mail by nationally recognized carrier, courier service, etc. The notice provision also stipulates to whom notice must be given, often multiple persons within a business at an executive level. A notice provision can specify that for particular delivery methods (most commonly notice by email), acknowledgement by the party receiving the notice is necessary for the notice to be effective. Notice provisions may also specify that notice by a certain method is deemed effective only after a certain period of time has passed since the notice was sent.
Notice provisions can include concepts that are counter-intuitive and situation specific, and it is important that the method of communication that the parties expect to use be incorporated into the notice provision. Businesses should ensure that their contracts contain notice clauses that each party can easily follow, that make sense given the nature of the relationship between the parties, and that can lead to the resolution of matters without causing dispute. When disputes do arise, the remedies available can depend on whether proper notice was given.
It is important to remember that every provision of a contract, not just the basic financial and business terms whose importance are most obvious, require attention and can fundamentally impact a business relationship. A key focus area of my practice at the Forrest Firm and as a business attorney is the drafting, review, and negotiation of contracts for businesses to ensure that their contracts fit the way their businesses operate and help achieve their business objectives. We are here to help with these areas of your business and much more. Contact me at the firm today to get started.