At the start of a business relationship, with the world full of
promise, it is common to rely on another's "reasonable
endeavours" to get the job done. But the inherent vagueness of
the term is open to abuse, leaving the heart of your deal
Be wary of the word "commercial"
Recently, a buyer successfully defended legal proceedings after
withdrawing from a $30m purchase of an aged care facility. The
buyer had promised to use "reasonable commercial
endeavours" to enter into separate acquisition and financing
The use of the word "commercial" can imply that some
commercial steps need to be taken, as distinct from merely doing
that which has already been agreed. This means you are more likely
to be able to enforce a promise made to you if you omit the word
Even if you do this, it is important to make it crystal clear
what "reasonable endeavours" actually means.
Be very specific in the language of the contract. Even if it is
logical and obvious for particular things to happen for the deal to
be done, you should still specify clearly what endeavours are
Make sure you also include the duty to act in good faith. This
can include an obligation to act reasonably and honestly, without
any other commercial motive.
Seven questions to ask yourself
These questions can help you to formulate what terms to include
in your contract if you are relying on someone's
"reasonable endeavours" to get the deal over the
What do you specifically want or not want?
What does the other person have to do, who is that person, how
do they have to do it and by when?
Is there an identifiable point at which you might decide the
objective is not achievable?
Are you relying on the other person's resources? If so,
what are they and how will they be used?
Are there any external influences on the other person that may
prevent them meeting their obligations?
Is there a person who can waive the need for obligations to be
met? If waived, should there be other changes (eg a price
What should the consequences be if obligations are not
Example - pub sale
Let's say you're selling a pub. The sale contract will
normally be conditional on government approval of the transfer of
the liquor licence, requiring the buyer to use "reasonable
endeavours" to obtain that approval.
But it would be remiss to leave it at that. The contract
describe the objective - the sale of the pub - in some
specify timing - eg date for preparation of the application,
lodgement, acceptance and, if necessary, court appeals
describe what transfer applications must be made, by whom and
require the buyer to commence court proceedings to appeal any
adverse decision and to spend money engaging experts to do so,
unless there are no reasonable prospects of success
allow you (as seller) to lodge a separate application and run
separate proceedings with your nominated licensee if the transfer
application is rejected (eg because the proposed licensee is of
grant you a power of attorney to sign applications on behalf of
specify that all related costs are paid by the buyer
Including these specifics makes it easier for you to enforce the
contract and complete the sale.
You can apply the same process to many other business
transactions, including leases, construction contracts, procurement
contracts and professional service agreements.
On 12th November 2016, new laws will commence to protect small businesses from unfair terms in standard form contracts.
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