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Sometimes, re-negotiating a contract is the best option

On Behalf of | Sep 15, 2023 | Business Law

Northern Kentucky businesses have every right to expect that if they enter an agreement with a business associate, that individual or organization will follow through.

However, the reality is that parties breach their commercial contracts because it no longer makes business sense for them to keep their agreements.

They may have had every intention of following through on a contract, but financial circumstances or just the reality of their business – including better opportunities – make it better just to accept the consequences of breaking a deal instead of continuing in an unfavorable arrangement.

Furthermore, unlike many other areas of the law, any material failure to follow through on an agreement is a breach of contract. The reason for the breach does not usually matter.

In other words, the person who broke the deal does not have to have done so intentionally and may have exercised good, careful judgment at every step. They are still liable.

But sometimes it just does not make sense for a business to draw a hard line and go straight to court if one of their associates breaches a deal.

In fact, doing so could lead to the loss of a relationship that has continued value.

Re-negotiation of a contract may in the long run be a business’s best option for dealing with a breach. Whether this softer approach is best in a particular case will depend on the specific facts and circumstances as well as the goals of all parties involved.

There are some best practices for re-negotating a deal

According to a program run by Harvard Law School, there are some important things to keep in mind with respect to re-negotiation.

Before re-negotiating, the side with a breach of contract case should make sure it understands the full value of maintaining a good relationship with the other party as opposed to following through on its case.

Likewise, the business will also want to understand all the legal and financial consequences if their efforts to re-negotiate fail.

The business should carefully consider how the re-negotiation process will look. Questions like who will be involved and in what setting are important. On this point, the business may consider whether getting a mediator involved even before filing suit would be helpful.

From a business perspective, re-negotiation should be more than one business simply forgiving the other party its breach. The business should get some additional value in return.