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How to Renegotiate Contracts: Things to Take Into Account

Entering a formal contract can be daunting at first, depending on the object of the contract (a car, a house, a leasing, an insurance policy, you name it). When it comes to contracts in general,

How to Renegotiate Contracts Things to Take Into Account

Entering a formal contract can be daunting at first, depending on the object of the contract (a car, a house, a leasing, an insurance policy, you name it). When it comes to contracts in general, there’s a Latin phrase that goes “pacta sunt servanda” which means that, whatever you have agreed to in a pact, that pact compels you or snags you for the purposes of that pact (including all its conditions, of course). If obligations are not met, sanctions that are stipulated in the contract may apply.

In spite of the fact that a contract is meant to be precise and detailed, that does not necessarily mean that it has to be rigid. The parties should foresee the possibility of having the circumstances around the contract change over time (especially during a pandemic that has presented a great challenge for transactions in general).

If these lines happen to find you at a time when you are part of a contract, or if you intend to enter into one shortly, it would be sensible to consider the eventual possibility of having to renegotiate that contract at some point or another. However, renegotiating a contract is not always easy at first; at times, it is the only resource the parties have left in order to carry on with the contract. In some cases, the situation can even be somewhat emotional. It’s clear that the relationship created through a contract is not limited to the covenants that are included in it: it relies on the sense of mutual trust that the parties should rely upon as the foundation of that contract.

First off, parties should understand that the main goal of renegotiating a contract is for it to not be detrimental to either of the parties involved. The idea is to protect the interests and rights of both parties.

And that is why this can all be daunting. It’s clear that there are myriad circumstances that could affect the course of the effects that derive from a contract. Sometimes, those circumstances refer to what is commonly known as “force majeure,” which in turn refers to an event that cannot be foreseen by the parties involved in that contract or, even if there was a chance to foresee it, there was no possible way to prevent it from happening or to avoid it.

Having reached this point, what are some of the situations that make it worth renegotiating a contract?

  • To adjust the originally agreed upon price (whether it has to be increased or reduced) or to introduce a change regarding who will cover certain fees that are included in the contract.
  • To extend a term included in the contract. Sometimes, if one of the parties has to comply with the procurement of a certain document that the other party needs, such procurement may face certain delays (mostly when the issuance of the document is linked to a bureaucratic procedure). Similarly, if it is necessary to extend the closing date, parties should consider renegotiating these aspects to keep the contract advancing steadily.
  • To allow the seller of real estate to make certain improvements to the property in order to make it suitable for the purposes of the buyer (for example, to constitute an easement or to cancel a mortgage), while a proportional portion of the purchase price is held.
  • To clarify the rights and obligations of both parties (usual when it comes to lease agreements).
  • To have the seller of real estate complete the payment of any eventual taxes that apply to the property (municipality taxes, condominium monthly fees, among others).

And those are just a few basic examples of many that could be given, depending on the type of contract. If an agreement included a clause to renegotiate the contract, or the possibility to make amendments through “addendums,” there might be room for the parties involved to try and renegotiate the contract, but this will always depend on the circumstances that pertain to each situation.

These are some general recommendations or pieces of advice for when you are challenged in the attempt to renegotiate a contract you have been taking part in:

  • Establish an objective: this requires some thought. Whenever a renegotiation is attempted, it is better if both parties have duly acknowledged the reasons or motives that justify the need to renegotiate the contract. Once this has been done, chances are it will be easier to determine which terms of the contract require an eventual amendment (if it turns out it is not easier, it is still a good start).
  • Clear proposals: applies to both parties. Once the objectives have been established, then you can start working on certain proposals for possible courses of action. Of course, such proposals should be inside the scope or range of your possibilities of action; it would not be sensible to compromise yourself to do something you might not be able to do, right?
  • Take into account the counterparty: the situation can involve some tension. In such cases, showing some empathy could be a balm. If the counterparty notices you seem to understand that renegotiating the contract could suppose some degree of harm, it might help to reduce that tension and to create a better environment in order to discuss the possibilities. After all, the main goal would be to return to a healthy relationship with the counterparty once the situation that is affecting the effects of the contract comes to an end.
  • Show firmness: this does not mean that you should assume a fierce, categorical stance necessarily (after all, you are in situation together). This basically means that, in spite of the fact that you might find yourself in a situation that “weakens” you, it would still be necessary to show conviction in your proposals. Showing confidence and staying firm in your proposal could help persuade the counterparty that the proposed solution or shortcut supposes a benefit to both parties.
  • Offer compensation: if the strategy outlined in the last point is unsuccessful, and the proposals you had in mind are not convincing enough for the counterparty, you could resort to offer some sort of temporary compensation depending on the type of contract (like extending the term of the contract, improving the quality of what is being exchanged periodically through the agreement, reducing the price, and so on).

It is a given that renegotiating a contract is something that requires some experience, and experience itself is gathered only as time goes by; however, if the aspects that were just addressed are taken into account, they could make for a good foundation.

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daguilar@outlierlegal.com

Attorney with experience on Real Estate, Real Estate planning, and notary affairs. Has focused on the branch of Civil Law known as ius in re or rights over property. Has experience also in non-contentious procedures and arranging reports on legal affairs in general

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