Termination / Suspension
The clauses relating to termination and suspension should be carefully crafted. For instance, after an examination of the background of the other company, a party may require a change of control clause, especially if control changes to a competitor. Similarly, as was seen in the article on employment, there will likely be detailed provisions on how information will be dealt with on handover, with the buyer also seeking an indemnity fromthe seller where the information provided was false.
The buyer will frequently require and succeed in obtaining the right to terminate for convenience, in other words without cause, on 3 months notice. The seller may ask for such a provision but will rarely succeed in getting it.
Termination for breach of contract on the part of the seller should be qualified by the buyer’s requirement to give notice of the breach giving the seller the opportunity to remedy within a reasonable time.
Suspension of provision of the services by the seller, or even termination of the contract by the seller, for late payment by the buyer is often negotiated on the basis that the seller has to give two or even three successive written notices, each one within a certain period of the other, so that there is no possibility that termination or suspension of services will occur where it is not absolutely justified.
Either the buyer or the seller may require that they are able to terminate the contract in the event that there is a change of control of the other party. Such a clause needs to be negotiated against the specific background of each company, bearing in mind the possibility that control may change to a competitor.
Contracts will almost always be expressed to terminate automatically on the insolvency of the other party.
The seller may ask for the ability to terminate the contract in the event that for reasons beyond his control he is unable to continue to have adequate insurance cover for the services. Frequently this issue is resolved by the seller agreeing that his right to terminate goes if the buyer can procure that insurance for the seller, at the seller’s expense.
The contract should contain pragmatic provisions dealing with the outgoing provider’s handover to a new provider, including co-operation generally, handing over records and as I mentioned earlier, providing accurate employment information to the incoming provider, and indemnifying the buyer against any claim arising from the inaccuracy of that information.
This series of articles has demonstrated the complexity of security services contracts. Both parties need to be well-prepared before entering negotiations. By ensuring a detailed knowledge of its own business and thus an understanding of the key areas of negotiation each party can ensure that a suitably thorough contract is drafted that takes the actual circumstances of the business into account. Additionally, in conjunction with a well-planned timetable this can be done in a time efficient manner, in spite of the complexity and, in many cases, high stakes involved.
If you would like any firther information, please contact John Spratt, Chairman and Head of Company Commercial, on 01295 204112 or email firstname.lastname@example.org.
*Disclaimer: While everything has been done to ensure the accuracy of the contents of this article, it is a general guide only. It is not comprehensive and does not constitute legal advice. Specific legal advice should be sought in relation to the particular facts of a given situation.*