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Legal Update: Contract Nightmares

In this article we will try to flag things to be aware of and watch out for when entering into contracts and highlight vices regularly used by companies to secure their advantage.

John Gaunt & Partners have coordinated the BII’s legal helpline for a period of one year and answer calls relating to licensing and general law. In a series of forthcoming articles they will raise issues upon which they frequently advise with a view to trying to raise awareness on matters where Licensees regularly experience problems.

 

The legal help line regularly receives calls from Licensees in relation to terms and conditions of contracts they have entered into and the phrase “it is in the small print” is one which we frequently have to say in answering those calls. 

In this article we will try to flag things to be aware of and watch out for when entering into contracts and highlight vices regularly used by companies to secure their advantage.

 

The two most pertinent pieces of advice we can give to the membership are:

 

Read before you sign and don’t rush in.  No deal is ever so good that it warrants signature there and then.

 

1.         Don’t Rush in.  For many Licensees who take their first premises, the number of arrangements which need to be secured can be overwhelming.  After the Lease negotiations there will be a series of additional contracts to make the pub work ranging from the mechanisms for taking payment (cash card machines and tills), the equipment in the kitchen (glass washing machines, fridges) to cleanliness of the premises (cleaning contracts, sanitary provision).

 

A parade of representative from various companies will frequent the premises but do not succumb to pressure to sign on the day.

 

The majority of the contracts will not attract the benefit of a cooling off period as, they will be classed as Business to Business rather than Business to Consumer.  Once the ink is dry, the deal is sealed and there is no going back.

 

2.         Read before you sign.

The representative of the company, the initial email or the hand out will just provide an overview of the contract but the detailed terms and conditions are as binding as headline offer and need to be considered and this is the part of the contract which very often causes the subsequent pain.

 

What to watch out for.

We hear from the membership a number of clauses within the contract which regularly cause significant issues in the future.

  • Determination Date

Licensees often believe that they have signed up for a fixed term contract of say 2 years and at the end of that period they are released from the agreement.  This is not always the case.  Some contracts provide for:

  • Automatic continuation of the contract.  If formal notice is not provided that the service/equipment is no longer wanted, then the contract will automatically renew.
  • Notification timings

Many contracts prescribe the time frame for notification of termination. Unbelievable this is not at any time prior to the end of the contract.  It may be:

  • on the anniversary date or
  • a three month period prior to the anniversary
  • a three month period running between six months prior to the anniversary and three months prior to the anniversary.
  •  Any other combination which can be thought up by the supplier. 

 

Clearly when you are working in a busy environment it is difficult to track and remember the key trigger dates, consequently Licensees often find themselves tied in for an additional period.

 

Price Changes:

We often hear that the reason Licensees signed the agreement in the first place was the price was too good to be true but then find the reality is somewhat different.  The small print often builds in automatic uplift on the price structure after a period of time which could be the first year.  The uplift can be on reasonable terms such as mirror inflation or can be quite significant by reference to a percentage upgrade, or by reference to their standard fee structure.

The material uplift in cost can come as a significant shock and severely impact profit margins.

 

Duration of initial contract:

Be aware of signing up to long contractual periods unless you are clear as to the benefit to your business.  What may be a good deal at the beginning of the contract may not be 3 or 4 years later.  More competitors enter the market or products become more available.  If it is a fixed term contract then the break clause may only be activated on payment on a penalty fee which may be so high as to make it an unrealistic option.

 

Seek clarity on critical elements to you for example if the Lease of equipment includes maintenance what actually is covered by the phrase maintenance in this contract.  Does it include a call out fee, is there an annual service, are both labour and parts included.

 

Our best advice is take your time and read carefully so as to avoid falling into a situation whereby you cannot escape the contract and/or it become significantly more expensive than you anticipated.


If you need further advice in this area you can call the BII Legal Helpline 24/7

0330 058 3878

Just quote your membership number to access the advice for free!