Top tips from 2025 lessons when negotiating commercial contracts
Since I started my training contract in 1997 and for the nearly 30 years since, I have picked up a lot of learning points from my time drafting and negotiating commercial contracts and advising clients. As well as keeping up to date with new cases through the year, at the beginning of the year VWV lawyers have a commercial contract update training which provides an opportunity for us to stand back and question why we do things and what lessons we can learn from recent developments. This article shares some of those 2025 lessons with you.
Who are you contracting with?
This is one of the most basic and important questions, yet so often overlooked. I see people at commercial organisations read a contract without starting at the top of the document. What is the name of the legal entity you are dealing with? Has the name "limited" been used, or is this really a trading name for a sole trader? Is the party named really the party you are contracting with or are they contracting on behalf of someone else, as an agent? Have you written a provision into the contract to guard against that? Does the company you are contracting with have sufficient assets to pay you the fee you are charging, or to stand behind the quality and delivery of the goods or services that they are providing, or do you need a guarantor, such as a parent company?
Does the person agreeing with you have authority to enter into the contract with you?
This is another thing that is overlooked. If there is a contract entered into by the "Marketing Manager" or some other title, do they have authority to bind their employer? If not, do you have evidence of a chain of command showing that the contract you thought you had entered into is valid and binding? From your side, is it possible that someone without authority to bind you to a legal obligation has purported to do so, and that could end up binding you through the rules around "ostensible authority" - so do you need to be clear to that person and the world at large what the scope of their authority is and who can enter into contracts for you?
Was a contract formed before signing the written contract?
With a few exceptions, most contracts can be formed informally - whether orally, in meetings, by exchange of emails or other. As long as there is an agreement between the parties as to the main terms, courts have often found that a contract exists even before the written document has been signed. This can lead to confusion, complexity and the parties being bound to a contract before they thought they had been. There is a simple phrase that has often successfully prevented this from happening: "Subject to contract". Do you use that phrase, and on every communication before you want to be legally bound to a contract? This is totally different to "without prejudice", which I sometimes see being mixed up with it. Another statement that can be made is to be clear that any contract is "subject to approval of the Board", and nothing is legally binding until that has happened and been communicated to the other party.
Winning the "battle of the forms"
This doctrine refers to the position where buyers and sellers have their own sets of terms and conditions - of purchase and supply - which usually contain vastly different perspectives. Who wins? It is usually the person to fire the last shot or at least that person does not lose. It is therefore important to keep trying to get your own terms and conditions in play - whether with a quotation, order acknowledgement, order acceptance, confirmation of order, etc; or with a purchase order, or other document. There are clever ways you can do this, but the point is that it is often not given enough priority. Getting process right is important and can make all the difference if there is a dispute later. Training staff on the importance of this is essential.
"To be agreed" - This may invalidate the contact
If you have worked with me for any period of time, at some point you are likely to have heard me tell you "Agreements to agree are not enforceable"! What does this mean? If the contract says "to be agreed", or "the parties shall agree [x]", then the contract may fall through. A court will not create an agreement on behalf of the parties for something that they could not agree themselves. The more important the term that has not been agreed, the more likely that the whole basis for the agreement existing will fail. However, if there is some sort of clear mechanism, that can work - for example, where the supplier will determine the price, after having consulted with the buyer during a clear consultation process.
Did you intend for a third party to be able to enforce the contract?
It is often thought that contracts can only be enforced by the parties to the contract themselves. That used to be the case until the Contracts (Rights of Third Parties) Act 1999. That was potentially a massive change early in my career, but often those rights are expressly contracted out of in the contract terms. Since that Act, contracts can be enforceable by third parties if they are expressly mentioned as being able to benefit or they are within a class of people intended to benefit. This can be helpful. However, a few things to note here:
- If there is a clause at the back of the agreement excluding the rights of third parties to benefit, that can cut across any intention to do so - so, an important lesson to be careful about leaving in standard clauses at the back of the terms / agreement template without thinking through their impact.
- A clause intending to benefit a third party can leave the other party open to a claim from multiple parties. If that other party wants to limit their liability, they need to bear in mind claims from those third parties too and seek to limit their liability in aggregate under or in connection with the agreement from any source - otherwise, those third parties may be able to make multiple or unlimited claims.
- Remember that if you are granting third party rights, you may want only the contracting parties to be able to amend the agreement without having to get permission from a potentially wide class of third parties who may be benefiting.
- Consider other knock on effects where third parties may be benefitting. For example, if there is a jurisdiction clause that provides that the parties have to bring any claims under the courts of England and Wales, then what about third parties? Unless the clause is drafted to hold the third parties to the same point, they could potentially bring claims against a party in any other jurisdiction - which could get unpredictable and costly.
This is Part 1 of my beginning of 2026 contract law reflections. I am going to write another 2025 update soon, so watch out for Part 2 of these top tips.
If you would like to run your commercial contract by us or have VWV's practical input into drafting or negotiating an important or key contract with you, please contact Paul Gershlick in our Commercial team.
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