Small Business and unfair Contracts

The skills required to successfully run a small business are broad. Sales & marketing, accounting, production, supply chain management along with negotiation and human resources skills. Some or all are required in order to make a small business successful. In addition to all that, one area that is regularly neglected by business owners is asking for specialist advice and in particular structural and legal advice. This last function may well be the one that protects your business in the end.A current theme we are seeing in our practice is small business owners who come to us in highly complex situations based

A current theme we are seeing in our practice is small business owners who come to us in highly complex situations based upon the signing of unfair contracts. Many of these business owners meet with us only after their business begins to experience some distress. This is often as a result of a dispute or misunderstanding they are facing from a contract that they have signed which they now see as unfair. When asked why they signed the contract in the first instance answers like “it seemed alright” or “I didn’t notice anything untoward” are given, yet if these business owners simply visited a specialist in this area it is more than likely that all of the issues they are facing would never have happened in the first place, or they would have entered into that agreement fully informed and risks known.A typical example is a business owner who is overwhelmed by a large conglomerate offering them work and the business owner believing that if they do not sign the contract their own business will never achieve its potential. An example of this was a small business in the building industry who was offered a contract to provide services to a global property group. The business owner believed that the contract would transform his business, the only problem being the terms of payment and amounts paid were at the discretion of the global property group. The relationship quickly deteriorated within six months and the business owner had no option but to liquidate his company after the property group started forming its own view on the value of work completed. This issue was clearly covered in the relevant contract.

A typical example is a business owner who is overwhelmed by a large conglomerate offering them work and the business owner believing that if they do not sign the contract their own business will never achieve its potential. An example of this was a small business in the building industry who was offered a contract to provide services to a global property group. The business owner believed that the contract would transform his business, the only problem being the terms of payment and amounts paid were at the discretion of the global property group. The relationship quickly deteriorated within six months and the business owner had no option but to liquidate his company after the property group started forming its own view on the value of work completed. This issue was clearly covered in the relevant contract.An area that we often see issues is with large shopping centre providers and their tenants, small businesses believe that by signing up with a large shopping centre it will provide them with the exposure and foot traffic in order to make their business successful, whilst this is true often the terms and conditions relating to the lease contract make it all but impossible to justify their continued tenure. Examples include “floating rents” where initial rent amounts are charged however a percentage of the amount of income above a monthly amount must be paid to the centre management as an additional fee, forced sales whereby centre management tell tenants to discount items in their store, no “exclusive area rights” whereby another group selling similar items can open up next door if they wish, extra charges for the appointment of key management staff of the centre, the list goes on. Again these items are referred to in lease agreements and a thorough review would have uncovered these issues.

An area that we often see issues is with large shopping centre providers and their tenants, small businesses believe that by signing up with a large shopping centre it will provide them with the exposure and foot traffic in order to make their business successful, whilst this is true often the terms and conditions relating to the lease contract make it all but impossible to justify their continued tenure. Examples include “floating rents” where initial rent amounts are charged however a percentage of the amount of income above a monthly amount must be paid to the centre management as an additional fee, forced sales whereby centre management tell tenants to discount items in their store, no “exclusive area rights” whereby another group selling similar items can open up next door if they wish, extra charges for the appointment of key management staff of the centre, the list goes on. Again these items are referred to in lease agreements and a thorough review would have uncovered these issues.Insurance contracts need to be appropriately reviewed as many businesses have sought our assistance in recovering their organisation after a failed insurance claim. Many policies assume certain prerequisites before a claim can be enacted, for example segregation of duties, security systems being in place or appropriate review of employee activities, if these prerequisites are not in place the insurance company may not pay on any claim.

Insurance contracts need to be appropriately reviewed as many businesses have sought our assistance in recovering their organisation after a failed insurance claim. Many policies assume certain prerequisites before a claim can be enacted, for example segregation of duties, security systems being in place or appropriate review of employee activities, if these prerequisites are not in place the insurance company may not pay on any claim.Picking up a new client (particularly a big client) is always exciting for any small business,

Picking up a new client (particularly a big client) is always exciting for any small business, however it is important that appropriate due diligence is completed on the client before signing any agreements. The ramifications of not conducting appropriate due diligence can be fatal for a small business, no matter how good a client may seem it is always worth checking the fine print.