‘Business without end’ – article by Christine Oxenburgh, Dispute Resolution Partner
I often get asked what happens when a fixed term contract comes to an end and my client carries on doing business with the business on the other side. Most fixed term contracts have built into them what happens if the parties want to terminate and they are governed by those terms. However, if everything spills over after the end date everything is up for grabs.
- The existing agreement may provide for what happens in the future. Quite a lot of contracts for supplies such as photocopiers provide that there is a complete rollover and if you do not give notice by the required date you are stuck for a whole new period.
- Depending on what the first contract says there may be an extension on the same terms which may or may not have the same termination provisions i.e. notice such as I have mentioned above.
- The extension may be a new contract without any terms other than the service to be provided and the price. Of course, if there are no terms at all there is no contract.
I have had to advise several clients who allowed the contract to roll over that they are stuck with paying another two or three years’ service charges to whoever looks after their photocopier or phones. That is never a happy moment.
If there is no provision for what happens next or if it is not inferred from the wording of the first contract, the most likely outcome is that the extension can be terminated on reasonable notice. What is reasonable depends on what service is being provided.
An important issue comes up if you are the supplier, you have carried on supplying and suddenly your customer tells you that they do not want anything with immediate effect. You will be stuck in the position where you have to argue that you are entitled to reasonable notice. The last thing a business needs is an argument with a customer on whom it has been depending on for its turnover.
What to do
- READ THE FIRST CONTRACT. I am sorry but the number of people I speak to who have just signed a set of terms and conditions in minute script without even trying to read it is almost embarrassing. It is worth the 20 minutes or so of total boredom to find out what you are signing up to and if you do not understand it ask someone. This is from the woman who made the poor salesman in the furniture shop read the terms and conditions in full because she had forgotten her reading specs. Just do it. I am here.
- Make a note of the termination date bearing in mind any notice provisions in the first contract which, of course, you will have read by then. Won’t you? If you do not want to carry on receiving supply, give notice. If you do want to carry on, start negotiations for a new contract.
- If you are the supplier, assume before the contract ends that is the end of the turnover from that customer. Budget accordingly.
- If you want to carry on supplying, before the first contract ends contact your customer and discuss the future. The worst that can possibly happen is you find out you will only be supplying for another one or two months but at least you can budget. However, it gives you the chance to negotiate. You may get a new deal.