CLUB LAW & MANAGEMENT
By Philip Smith, Secretary of the A.C.C.
CONTRACTS - are you aware of your obligations?
During these financially tough times it is clear that many clubs are looking for ways to trim back on excessive costs and rein in spending. However before terminating, or indeed entering into, a contract with a supplier it is important to read carefully the terms of the contract. Most notably the length, minimum spend levels and what happens if you try to end the contract early. We have
been seeing many contracts which include clauses which are now proving problematic for clubs. So even if you have followed the contract to the letter for the stated duration, you may have an unpleasant surprise when you come to try and end the contract.
Let us then examine in more detailrsome of these common problems.
The minimum spend of the contract
Many contracts (specifically brewery loan deals) might offer you a good overall price if you agree to buy a minimum quantity from them for a minimum amount of time. An example of this is the following clause taken from a trading agreement issued by a major brewer:
‘Without prejudice to any other provision of the contract, in the event that in any Trading Year the amount ofspecyied beers purchased by the Customer pursuant to this Schedule is less than the minimum purchase obligation stipulated in subparagraph 1.1 and the applicable provision of the contract, then the customer shall pay an demand by way of agreed liquidated damages a sum equal to fifty pounds (£50) per barrel for each barrel by which the amount purchased in the Trading Year in question falls short of the said minimum purchase obligation'.
This clause meant that one of our clubs received an invoice for £4,247.50 when they stopped ordering from the brewery and did not realise the significance of the above clause. ln that contract any cancellation or order not hitting the minimum purchase level would trigger this penalty clause requiring a set payment for each month of the remaining contract but with no goods or services being supplied - in essence free money for the contracting company. Obviously it is inadvisable to cancel any such contract or fall below the minimum order value and very constricting if your club is trying to cut costs. Consider carefully the implications of any minimum spend obligations before entering into a contract which includes them.
Minimum amount of time before cancelation
We recently saw a contract which in its terms and conditions required that the club in question give a minimum notice of 6 months before any cancellation of the contract can take place:
'The contract shall be for the duration of the initial period. with no provision for early termination, and shall continue automatically thereafter annually from year to year, unless terminated by either party giving a minimum of six months written notice by recorded deliver to expire at the end of the initial period or subsequent anniversary of that date'.
A fairly complicated clause which would appear to tie clubs in to a year to year contract which can only be cancelled if notice is received six months prior to the end of the current contract period. In laymen’s terms this means you will not be able to end the contract before the minimum period is up and if you want to end the contract at the end of the minimum period you would have had to give notice of this intention six months prior to yearly break point in the contract. To use some sample dates, if the contract was taken out on the 2nd December 2003 for three years then the earliest it can be cancelled is 2nd December 2006. lf it is not cancelled it will continue to be automatically renewed on a year to year basis. However, one of the quirks of this contract is that it is in fact renewed for another year six months prior to the current end date. Using our existing dates this means that this contract is renewed automatically for a further year on the 2nd June each year. After this date has passed it has been renewed for a further year. So if you came across this contract on the lst June 2009 and decided to cancel you could give your six months notice prior to the current end of the contract and it would end on the 2nd December 2009. However if you came across this contract on the 3rd June 2009 then because it is less than six months until the renewal date of the contract if you cancelled it the actual contract would not then end until the 2nd December 2010! Since the contract automatically renews for a further year six months prior to the current ending date it makes it even more important to be on top of this type of contract since as I have just demonstrated, depending when you choose to end the contract you could be left with 17 months until it finally ends.
Obviously many clubs encounter problems on the timing required by this clause. One way to solve this problem is to consider ending the contract 6 months prior to the mandatory end of the contract and then if you wish to continue dealing with the company in question renegotiating a new contract prior to the removal of services. This will give you added Flexibility and a better bargaining position. With the technology now available it is increasingly easy to set a reminder on your computer to alert you at every stage when the club should be considering terminating a contract.
The minimum length of contract
Fairly self explanatory and in common use, but it is important to bear this in mind when negotiating new contracts. These amounts are usually negotiable and the shorter the time of the minimum contract the better the position of the club in regard to general flexibility, renegotiation and to avoid. bearing the weight of an uncompetitive contract for too long. Now that everyone is tightening their belts you will start to see several suppliers
become much more competitive to keep and create new business, so the shorter your minimum term the more power you have to negotiate a very competitive contract.
So now we know the common pitfalls, here are some tips to avoid them.
Contracts are always negotiable
If a company sends you a contract with a long termination clause or a minimum spend clause then go back and try to get rid of these clauses or negotiate them to down to a more reasonable figure. Suppliers are having as many problems as clubs are with finances and to keep your business they will often have considerable room for negotiation. Don’t feel you have to accept these clauses just because the supplier says they are in all their standard contracts - the supplier is perfectly able to adapt its contracts when it wants to. Remember the law views both parties to a contract as parties on equal footing - you are perfectly entitled to negotiate and remove any terms or clauses you find unfairly restrictive.
Be on top of your contracts
If you do have a contract with a clause such as the one detailed above then make sure you are aware of the relevant timeframe of the contract. If the contract is due to expire in December of this year you need to remember to cancel the contract (if you so desired) in June of this year. The ACC’s advice would however be not to enter into a contract with such a restrictive clause. As we’ve said it is a buyer’s market at the moment, these businesses need your money and overly restrictive clauses such as this one should be the first to go when negotiating a contract.
Read carefully any contract you sign
Many of these clauses are not obvious (such as the one above hidden in Schedule 4 of a complicated contract) and will be hidden in the small print. Make sure you read any contract carefully before you sign it. lf there are any clauses that you do not fully understand then highlight them and seek clarification. The problems above often arise when you come to end a contract and only then discover a troublesome clause. Always be aware of what you are signing, what you are agreeing to and the terms of the contract that limit your ability to cancel.
Know who's in - and sign them in
Prescott, Blair, Brown - three names you would be surprised to see in the guest book of a Conservative Club.
So, you can imagine the surprise of Harrow council investigators when a local club - not Conservative - had names such as Al Pacino, Robert Redford and Arsene Wenger in their signing-in book.
Had the club struck lucky with patronage from Hollywood stars and the Arsenal manager?
The investigators twigged that something wasn’t quite right and, as a result of their suspicions, the club was taken to court and was fined £2,000, with £500 costs, for a breach of the licensing law.
The A.C.C. believes this story should remind everyone that it is unlawful to serve anyone but legitimate members and their guests and that Local Authorities are clamping down on this.
The Licensing Act, 2003 does not insist that a guest be signed in by a member; however it is expected that, during an inspection, all the guests would be accounted for by the members present at the time.
Clubs need to have sufhcient control over the persons purchasing and consuming alcohol on the premises; the law, therefore, allows clubs far greater flexibility on guests, and their attendance, than your own Club Rules often provide.
If the Police visited the club one evening and found a non-member, who was not a guest of a member, then the club would be looking at a hefty fine and, if repeated, could have its Club Premises Certificate, threatened. lf, however, the non-member was clearly a guest of a member then there would be no breach of the law.
A properly kept signing- in book provides evidence of correct procedure as required by the Club Rules.
Interestingly, it has never been a legal requirement for guests to be ‘signed in’, in that there has never been a specific section of the Act which requires this. However, both Police Licensing Officers and Licensing Authority Officials, have always asked for this procedure to be carried out.
Often, when visiting a club, they will request to see the member’s Guests Book as evidence that the Club is being properly, and professionally, managed. A club is expected to be able to show who is in the club, and in what capacity.
The Member’s Guests Book is proof of this; it is also a requirement of almost every club’s rules that guests be signed into the Member’s Guests Book.
The A.C.C., therefore, recommends that whatever your Club Rules state about the frequency of guests their attendance should be recorded on every occasion.
A.C.C. Member ’s Guests Books are available from the A.C.C. at an inclusive cost af £13 (ref no. 220).