Five top tips for charities navigating contracts

Contracts. Even the word can be daunting, not to mention the feeling when you’re faced with a 30-page document containing an array of legalisms and Latin phrases. However, as daunting as they can be, they are often vitally important to protect your charity while dealing with suppliers, customers or commercial partners. As such, understanding the terms of a contract, or at least knowing some things to look out for, will help to ensure that the charity is not entering into something that will cause problems further down the line. Undoubtedly, a better knowledge of contractual concepts will save your charity time and money.

Here are some practical tips that can help you to ease the burden and give you more confidence while reviewing important contracts for your charity.

Understand your obligations

It sounds obvious, however understanding everything that you are required to do under a contract is vital to ensuring that you avoid committing a breach. Your obligations are often not contained within one clause, and so it’s important to read a contract carefully to identify everything that you are being asked to do.

Can you escape?

You may think that when entering into a contract, the last thing you should be doing is trying to find a way out of it. However, ensuring that you have an exit is vital. Particularly during the pandemic, we were regularly asked to assist clients trying to escape contracts they were no longer able to fulfil, without incurring further liability.

It is important, therefore, to build an exit route into the termination clause of the contract. If it isn’t there, put it in. A sensible approach would be to have an option to terminate the contract, without incurring additional liability, by giving a certain number of days, weeks, or months’ notice. The amount of notice required will often depend on the significance of the contract, and how easy it is to extricate yourself from it.

Beware indemnities

It is vital with any contract that you understand your potential liability. This not only includes payments that you’re required to make for services or products, but also relates to interest for late payment, liability for breach of contract and amounts payable in respect of indemnities.

An indemnity is an express promise to pay another party on the occurrence of certain events. They’re designed to ensure that a party is not financially harmed by the actions of another party, and they are often an important part of contracts.

However, what’s important to note is that if you see that you are giving an indemnity, then it means that you are liable to pay money in certain circumstances. So, you need to know what those circumstances are and look to minimise your risk as much as possible.

Limiting your liability

Linked to the point above, once you know your potential liability under a contract, you should try to limit it. This can be achieved by setting a financial limit in the contract. Limiting your liability brings certainty and reduces risk as you will know exactly what your position will be if the worst happens.

Are terms and conditions an option?

If you find that you are entering into similar contracts on a regular basis, putting in place a set of standard terms of conditions may have a number of advantages to you.

We’ve all accepted terms and conditions without reading them, and frankly, that is one of the main advantages of them. They do not encourage negotiation or revision. People tend to think that they are take it or leave it. As such, you are able to insert clauses which are beneficial to you.

Also, terms and conditions ensure that you are contracting on a consistent basis with your customers, clients or patrons.

To conclude, you should always ensure  that you:

1. understand exactly what your obligations are at the point of entering any contract
2. check whether or not there is an opportunity to escape the contract should you need to
3. always ensure that you know and are comfortable with any liabilities the contract exposes you to
4. once you know what your liability is, try to limit it through the clauses within the contract
5. consider the terms and conditions carefully – these aren’t always appropriate but they can bring significant benefits

If you have any questions or uncertainties regarding any contract being entered into by your charity, we recommend consulting a specialist to ensure that you’ve covered all bases. Our expert charity law team will be happy to help.

You may also be interested in the following articles:

• The Story of Kids Company: as one chapter ends, another begins…
• Time to get your charitable house in order
• Trading Companies and Charitable Status – The New Lanark Trust
• Top ten health and safety tips for charities returning to work

Legal disclaimer