Top tips: What to watch out for when varying contracts disrupted by Covid-19

Covid-19 is having an impact on business relationships of all kinds.  Our article Contractual and Commercial Considerations Amidst Coronavirus provides an overview of issues arising for businesses as well as practical steps that can be taken.  One of those steps is to approach other contractual parties directly to see whether alternative arrangements can be agreed.  Here we look at what you need to consider if a variation to the existing contract being agreed. 

As a business, you will be making difficult decisions in order to adapt to the current situation and the restrictions in place. Where there is less urgency, it may well be enough to wait and see what happens over the coming weeks. In others there may be no choice but to terminate contracts, or seek to rely on force majeure provisions.  However, there will be many instances where it is possible, and expedient, to agree now to delay the performance of obligations, i.e. rearrange bookings, postpone events and/or defer payments falling due.

Given the significant, far reaching and international impact of Covid-19, individuals and commercial entities alike will be alive to difficulties facing businesses and are likely to be keen to find a workable resolution with you. 

Whether you are just entering negotiations or have already agreed on variations or new contractual terms which allow you to maintain valued relationships, here are some key points to bear in mind:

• Consider whether you are seeking to vary the existing contract or whether you are terminating the existing contract and entering into a new one. The requirements are likely to be different.
• Look at the terms of the existing contract. There may be specific provisions about terminating the contract and/or varying it.  Failing to take the necessary steps may render the new contractual terms unenforceable and leave the parties open to future litigation.
• Whether you are entering into a new contract or varying the existing contract, ensure that there is certainty and clarity about what is being agreed and ideally put it in writing.
• Ensure that individuals dealing with the negotiation and formalities have the necessary authority to do so. 
• Where you are entering into a new contract make sure you fulfil the usual basic contractual requirements. 
• Where you are varying the terms of the existing contract this should be done by way of a deed unless consideration is being given.
• Bear in mind the context within which new contractual terms are being agreed and consider making allowance within those terms for the potential ongoing impact of Covid-19 and possible related developments. For new contracts Covid-19 and measures taken as a result of it will not be considered as unforeseeable. 
• Similarly take the opportunity to consider whether you require provisions dealing with the potential impact of Brexit.