As the Covid-19 pandemic wears on, forcing businesses to continue suspending or terminating contracts, it seems the oft-overlooked notice provision is finally having its day. Although notice provisions can take a multitude of forms, many are proving to be antiquated or problematic, especially considering the substantial changes to the way we work. To that end, now may be a great time to review the notice provisions in your form contracts and make adjustments where needed.
Why is a Notice Provision Important?
Notice provisions are critical for effectively delivering a required notice of default, termination or defective goods under a contract, as well as for delivering a notice to opt out of an auto-renewal or to exercise a right of first refusal, just to name a few. If you fail to deliver proper notice under a contract, it will likely lead to a dispute, which costs everyone time and money. However, if drafted properly, this short contract provision can help avoid costly disputes, so don’t gloss over it.
What Should a Notice Provision Include?
1. Types of Communications
Contracts typically require that all notices, demands, requests and communications be written and delivered pursuant to the rules set forth in the notice section; however, many contracts now permit casual email correspondence regarding day-to-day contract administration matters that will fall outside of the notice provision requirements. In this case, the notice provision should begin with an appropriate caveat, such as “Except in the case of notices and other communications expressly permitted to be given by telephone or email, all other notices and communications provided for herein shall be in writing and shall be delivered by…”. Given this increasingly common business practice, it is important that your notice provision delineate which communications must be sent in accordance with the terms of the notice provision.
2. Methods of Delivery
All notice clauses will list the acceptable methods of delivery for that specific contract, and in most cases, several different methods of notice delivery will be available to the parties, including personal delivery, certified mail with prepaid postage and return receipt requested, reputable overnight carrier (like FedEx or UPS), and facsimile. Email delivery is also making a regular appearance in notice provisions.
Tailor the acceptable modes of delivery to meet the needs of your company or at least those of that particular contract and business relationship. In the Covid-19 era of remote operations, facsimile may be obsolete and should perhaps be omitted from your contracts. On the other hand, email may be too risky for certain notices given the possibility of getting caught up in spam filters or bouncing back from an invalid address in the event the designated recipient no longer works for the contracting party. Additionally, if your company is now 100% remote, there may not be a person physically receiving mail on a daily basis at the company’s principal place of business. In this case, consider requiring overnight delivery with a courtesy copy by email. There is no right or wrong combination of delivery methods, so include what works best for your company.
3. Address & Designated Recipient
Each contract should specify the appropriate physical address for paper notices, email address for email notices, and so on. A properly drafted notice provision should also include a person’s name and/or title to ensure the most expeditious delivery, especially since time is of the essence when it comes to notices. For example, if the default provision in a contract includes an opportunity to cure and that cure period is short (e.g., within five days of receipt of notice), you will want to ensure that the notice provision is written as specifically as possible to avoid any risk of a delivered communication sitting in a department mailbox for a few days before it is opened.
4. Effective Delivery
A thorough notice provision should detail when notice has been effectively delivered to your counterparty. As a result, for each mode of delivery permitted under the notice provision, it is important to include language that specifies exactly when that notice is deemed delivered. For example, written notices sent via nationally recognized overnight carrier shall be deemed delivered the following day.
Although important to both sides, if your company is likely to be on the receiving end of notices, you should pay particular attention to how this point is drafted because there may be a situation where the intended recipient has not actually received the notice, yet notice is deemed to have been effectively given under the clause. In the prior example, written notices sent via overnight carrier shall be deemed delivered the following day; yet such notice may actually still be in the company’s mailroom. To avoid this situation, you may want to revise the language so that delivery is effective three days after it is sent by overnight carrier. On the other hand, when you are providing notice to a counterparty and delivery of notice is predicated upon fulfillment of a certain condition, such as receiving a read-receipt from notice sent via email, it may be wise to send notice two different ways to ensure the clock starts ticking rather than waiting for satisfaction of a condition outside of your control.
While the substance of notice provisions may vary by contract, the elements listed above should be included within every notice provision. Given the recent changes to the way we work, it’s the perfect time to review and update the notice provision and other boilerplate in your form contracts. If you would like help with this review, please contact Amy Jeffrey at firstname.lastname@example.org or 970-390-5997.
Amy Boatner Jeffrey is seasoned business attorney with over twenty years of transactional experience representing clients in various sectors and industries, including banking/finance, healthcare, life sciences, medical device, real estate, and commercial aviation. She also serves as the VP of Client Services for Outside GC LLC and its sister organization, Patent GC LLC.