Key features of commercial contracts: The small print that matters
The principal purpose of a commercial contract is to record clearly the agreement reached between the parties. Some terms will vary depending on the legal framework involved (for example, whether it is a B2B (business-to-business) or B2C (business-to-consumer) arrangement), while others will depend on the nature of the relationship itself. Whatever the type of contract, it is important that the parties understand exactly what has been agreed and that the document reflects those arrangements accurately. Clear drafting can help manage expectations, preserve commercial relationships and reduce the risk of disputes later on.
In this article, we take a brief look at some of the key commercial terms that businesses should consider when negotiating and entering into commercial contracts. (Note that the legal requirements to create an enforceable contract are not discussed).
Consideration
This is the price to be paid for the goods or services. It can be calculated in various ways, for example, a fee per item, a monthly charge or a percentage of turnover. The timing of any payment should also be set out.
If a price needs to be calculated, the calculation mechanism should be clearly expressed in a way that can be easily worked out. Including a worked example, which has been agreed between the parties, may be advisable.
It is crucial that the drafting properly reflects the commercial agreement reached between the parties. Certain components, such as delivery costs, certain maintenance services, upgrades, etc., may need to be included or excluded. VAT must also be considered; generally, if a contract is silent on VAT, a stated price is deemed to be inclusive of VAT.
Disputes frequently arise not because the parties disagree on price, but because they have different assumptions as to what that price includes. Spending time on these provisions at the outset can often avoid difficulties later.
Services
The parties’ obligations and the services to be delivered will need to be agreed and set out.
The consequences of a party failing to meet its obligations also need careful thought. For example, where a breach is particularly serious or an obligation is so important that a breach would render the contract pointless, the innocent party may want to be able to terminate the contract immediately. In other cases, a refund of part of the fee, the provision of an alternative option or the remedying of the breach may be sufficient.
Perhaps more than any other section of a contract, the services provisions should reflect the commercial reality of the relationship. The clearer the parties are about what is expected of each side, the easier it will be to manage performance and address any issues that arise.
Term
The term is the time period for which the contract applies. Contracts can be for a fixed term (for example, 12 months following which the contract will automatically terminate) or a rolling term (for example, an initial 12-month term which automatically renews for successive 12-month terms until one of the parties actually terminates the contract) or a combination of both, depending on the nature of the contract.
The appropriate term will often depend on the balance between certainty and flexibility. A longer term can provide stability, while a shorter term may allow parties to assess whether the relationship is meeting expectations before making a longer commitment.
Termination
Contracts usually set out when a party may terminate the contract. Common provisions include termination for breach, the insolvency of a party or where there is no cause but a certain period of notice is given.
Certain actions may need to be taken on termination of the contract or shortly thereafter. These could include having to provide final accounts, a handover process, being obliged to return certain information, etc., and any such requirements should be clearly set out in the contract.
It is often sensible to think about the end of the relationship at the same time as negotiating its beginning. Well-drafted termination provisions can provide clarity and minimise disruption if the parties decide to part ways.
Indemnities
This is an agreement by one party to “make whole” another party in respect of any loss that other party suffers, either in specific circumstances under the contract or generally. Indemnities often arise where one party is better placed to manage a particular risk, such as intellectual property infringement or regulatory non-compliance.
A party should consider carefully whether it wishes to give an indemnity and the consequences of the same.
If an indemnity is to be included, the parties need to ensure that the wording accurately reflects what is agreed between them and the party providing the indemnity may want to include certain safeguards, such as financial caps, and ensure that the provision is tightly drafted.
Limitations on liability
Most contracts will contain provisions that seek to exclude or limit a party’s liability under the agreement, such as stating that a party’s liability shall not exceed a certain amount, specifying the type of claims a party can (and cannot) make, and setting time limits within which claims can be made.
These provisions are often among the most heavily negotiated terms in a commercial contract.
A well-drafted limitation of liability clause should strike an appropriate balance between protecting a party from disproportionate exposure and ensuring the other party has an effective remedy if things go wrong.
The importance of boilerplate provisions
Commercial contracts are often negotiated with a focus on pricing and service levels, but the so-called “boilerplate” provisions can be equally important. Clauses dealing with notices, confidentiality, intellectual property, data protection, governing law and dispute resolution, can all have a significant impact on how a contract operates in practice.
Taking the time to review these provisions carefully can help ensure that the contract works effectively not only when the relationship is running smoothly, but also when challenges arise.
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Commercial contracts underpin most business relationships. Whether you are preparing standard terms and conditions, negotiating a strategic agreement or reviewing an existing contract, taking advice at an early stage can help identify risks and avoid costly disputes. Our Corporate & Commercial team advises businesses on a wide range of commercial contracts across the business lifecycle.
Disclaimer: This note reflects the law as at 13 August 2026. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.
