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Coronavirus (COVID-19)


Purchase and sale agreements and coronavirus

In this section you'll find information and updates related to coronavirus that are relevant to the law on buying and selling as a business.

The UK's response to coronavirus is changing regularly and often very quickly. While we'll continue to make every effort to keep this page up to date, there may be short periods where what you read here is not the latest information available. Where possible we've tried to provide links to official sources, so you can check the current situation.

Do customer/supplier contracts need to be honoured?

Business-to-business contracts

If you have a contractual obligation that you can't meet because of the outbreak, check if your contract contains a force majeure or material adverse change clause.

These allow you to freeze a contract or end it, if events are beyond your control. But the event must be listed in the clause and you must meet any conditions attached to it.

Alternatively, you could potentially argue that the impact of COVID-19 has frustrated the contract. This is when a change in circumstances makes it physically or commercially impossible to perform the contract, or would make the performance very different from the original intention. This would mean you'd be cleared from your contractual obligations. This could apply if, for example, you have to perform the contractual obligation in a region with a state-imposed lockdown.

Business-to-consumer contracts

It's possible that you have clauses in your consumer agreements that limit your liability for a delay in delivery or in fulfilling a contract. Under the Consumer Rights Act, consumers can challenge these if they are unfair.

Such clauses will have the best chance of being judged fair and enforceable if they:

  • Limit liability only for those events that are really out of your control and that are unavoidably a direct cause for the delay or non-fulfilment;
  • Require you to take all reasonable steps to avoid any delay or non-fulfilment even when faced with an uncontrollable event; and
  • Require you to inform the consumer as soon as possible of a delay or non-fulfilment that's expected due to an event outside your control, and – if the delay is at risk of being substantial – allows them to cancel with no financial penalty.

There are some helpful websites where you can find more information about what's regarded as an unfair term in a consumer contract:

Protection of supplies of goods and services

Contracts for the supply of goods or services will often allow suppliers to take action if the company they're supplying becomes subject to an insolvency procedure, e.g. by allowing them to end the contract. This helps the supplier to manage the risk of continuing to supply the goods/services but not getting paid.

The UK government's Corporate Insolvency and Governance Bill (expected to become law by the end of June) proposes that certain suppliers won't be able to make use of such clauses. This applies even if the right to end the contract arises before an insolvency procedure, but wasn't taken up (the right is suspended when the insolvency procedure begins).

This restriction doesn't apply where the company or supplier is involved in financial services, including insurance companies and banks. It also doesn't apply to suppliers that are defined as small entities. Broadly, a supplier is a small entity if at least 2 of the following 3 conditions apply to its most recent financial year:

  • Its turnover wasn't more than £10.2m.
  • Its balance sheet assets total wasn't more than £5.1m.
  • Its average number of employees wasn't more than 50.

(If the supplier is in its first financial year, these conditions are adjusted accordingly.)

If a supplier isn't a small entity, there are still exceptions. They can still end the contract if:

  • the company stops paying them (provided the contract allows that); or
  • the company agrees; or
  • a court allows it, which it can if it's satisfied that continuing the contract would cause the supplier hardship.

Pre-payment and delivery of goods

When you purchase goods from a supplier the contract would normally provide for the supplier to be responsible for delivering the goods to your premises and for you to become the owner of the goods only on delivery. In most cases, if you bought online the payment would only be taken when the goods are sent.

However, it might happen that you've prepaid for goods and were awaiting delivery when, in view of the pandemic, the supplier then proposed for the goods to be stored by them until normal delivery can resume after the current COVID-19 emergency has passed.

In this situation, the contract would need to be changed to provide for you to have become the owner of the goods when you made payment. It would also need to be ensured that the goods are clearly identified in the warehouse as belonging to you and not the supplier. This is to secure the goods in case the supplier goes into administration.

Furthermore, the landlord of the warehouse would need to be made aware that the particular goods do not belong to the supplier, so that they don't try to enforce commercial rent arrears recovery (CRAR) (distress) rights against the goods. There may also be other issues to sort out with the warehouse landlord, such as whether you will become liable to pay some or all of the warehouse fees because your goods are being stored there, in the event that the supplier goes bust.

It is not an ideal situation to have paid for goods remaining in the possession of the supplier for an extended time in normal situations but even less so during the current pandemic. Therefore, it's a good idea to take precautions by ensuring that the goods are marked, and all relevant parties are aware that they belong to you. Having proof of those communications would be helpful. It is, however, not a guarantee against incurring costs and delays in securing receipt of the goods if the supplier should become insolvent and unable to pay its debts.

Signing contracts with electronic signatures

Due to social distancing restriction, signing contracts has become more difficult during the pandemic. This has put new focus on electronic signatures and their validity.

Electronic signatures include all signatures where the person signing does not use a pen (or other writing instrument) by hand to write directly on paper. In English law, electronic signatures are not a new concept. In 2019 the Law Commission published a report confirming that electronic signatures could be used to execute (i.e. formally sign) documents and deeds (although their report did not consider the execution of wills or deeds that need to be submitted to the Land Registry for registration).

If the person signing the contract using an electronic signature intends to be bound by the document they're signing, and all other legal requirements such as witnessing are complied with, e-signed contracts will be just as enforceable as one signed by hand.

You have to be careful, though, when the signature is on behalf of a corporation. Ask the signatory to confirm that they have authority to sign and bind the corporation by electronic means and check the corporations' articles for any indication that electronic signatures are restricted.

What is the law guide

The Desktop Lawyer law guide aims to present the law to you in a comprehensive yet jargon-free and easy-to-read format. Our law guide is constantly kept up to date with changes in business and family law by our team of in house solicitors, and includes information across all the legal jurisdictions in the UK.

Our law guide is free to use. Where we provide documents related to this area of law, or where they may help you with any legal issue in this area, they will be listed to the right of this message.