What to look for in contracts?

Like all businesses, registered clubs will enter into written contracts with third parties, including its suppliers and contractors.

This newsletter sets out some of the key issues that clubs need to consider when reviewing contracts, especially contracts which are prepared by other parties.

Whilst some of the key issues to consider are set out below, clubs should read contracts in full and ensure that the terms of the contract and their intention and effect are clearly understood.

Who has prepared the contract?

The party which prepares a contract will generally issue a contract to the other party which contains clauses which are beneficial to the interests of that party and reflect its best possible outcome.

Accordingly, clubs should read contracts from third parties with that understanding in mind and critically analyse the wording, intention and effect of the clauses in the contract.

Whilst this does not necessarily mean that the contract will be unfair or contains hidden surprises, it is likely that some clauses in the agreement will not be in the best interests of the club.

Accordingly, those clauses should be identified and where possible, amended or removed from the contract.

Does the contract reflect the agreement between the parties?

A contract is an agreement between two or more parties which sets out the rights and obligations of those parties.

Clubs should ensure that the contract accurately and precisely reflects the commercial arrangement which has been agreed upon by the parties.

For example:

• does the contract correctly set out the agreed rights and obligations of the parties; and
• does the contract correctly state the make and model of the product that the club is purchasing.

If the club thinks that the contract does not accurately and precisely reflect the agreed commercial arrangement between the parties, then the contract should be amended to ensure that it does.

What is (or could be) the length of the contract?

Clubs should determine the actual length of the contract.

In this regard, clubs should identify:

• the initial term of the contract; and
• whether or not there are options for additional terms;
• if there are options for additional terms, who and how can those options be exercised;
• whether or not the contract contains automatic renewal clauses;
• if there are automatic renewal clauses, how can automatic renewal of the contract be prevented.

The above matters need to be identified because it could result in the contract running for a lot longer than the club may have originally anticipated.

We also suggest that clubs should diarise key dates for contracts (and earlier “alert dates”) so they are not caught out by such clauses.

What is the total cost incurred by the club under the contract?

Clubs should determine the actual costs associated with entering into the contract.

Although some costs will be easy to identify (for example, monthly instalment payments for an equipment), there will be other costs which are not expressly stated but contained in the contract.

These costs usually arise from the club’s obligations under the contract.

For example, if contract requires the Club to obtain the necessary regulatory approvals at its own expense, what are the costs of obtaining those approvals.

Accordingly, clubs should identify their obligations under the contract and determine the costs of complying with those obligations.

This may require clubs to undertake some enquiries and due diligence in respect of the contract.

Is the club providing indemnities and releases from liability to the third party under the contract and if so, what are their effect?

In many contracts, third parties require clubs to indemnify those third parties from any loss or claims and to release the third parties from any liability arising from the contract.

Clubs should obtain legal advice to understand those clauses and their possible effect on the club.

Clubs should also consider whether or not reciprocal clauses should be imposed on those third parties.

What are the termination rights of the club?

Clubs should identify how they can get out of contracts.

For example, can the club terminate the contract if:

• the other party is subject to an insolvency event; or
• the other party commits a serious breach of the contract;
• the other party fails to remedy a breach of the contract;
• the club does not want to continue with the contract for any reasons.

Additionally, clubs should be aware of the procedures to be followed when terminating the contract and ensure the procedure can easily be complied with.

Are there any restrictions on the club entering into the contract?

Clubs will need to consider whether or not there are any restrictions on the club entering into a specific contract.

For example:

• if the club wishes to enter into a new contract for an ATM, does the club have another ATM contract which prohibits the club from entering into another ATM contract; and
• if the club wishes to enter into a development contract, does the club’s constitution and/or any relevant legislation restrict the club from entering into the contract or require the club to obtain any approvals before entering into such a contract.

Are the directors of the club recorded as guarantors under the contract?

In some contracts, third parties may require club directors to personally guarantee the obligations of the club under the contract.

This may include guaranteeing payments to be made by the club under the contract.

We strongly recommend that club directors do not personally guarantee the obligations of clubs.

Are there unusual clauses in the contract or clauses which you do not understand?

Clubs should identify clauses which:

• appear unusual (for example, the clauses may appear to be unrelated to the subject matter of the contract); and
• require the club to obtain further clarification on.

Clubs obtain legal advice and clarify these matters before they enter into a contract.

Further Information and Contact Details

Should you wish to discuss any aspect of this Newsletter or want any legal advice about these matters, please contact any member of the Clubs team on 8251 7777 or by email:

This publication is produced by Pigott Stinson. It is intended to provide general information only. The contents of this publication do not constitute legal advice and should not be relied upon as legal advice. Formal legal advice should be sought from us in respect of the matters set out in this publication. Liability limited by a scheme approved under Professional Standards Legislation.