A severability clause is a standard provision within commercial contracts that can provide many benefits. However, if you choose to include a severability clause in your contract, it is important to draft it correctly to benefit from it properly. This article will help you better understand severability clauses by taking you through four key benefits of including one in your commercial contract.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
What is a Severability Clause?
A severability clause is a provision that many commercial contracts will include. Although, some contracts will instead include it as a ‘severance clause’. If parts of the contract are unenforceable or void, this provision will remove them. A contractual provision can become unenforceable if:
- a change in the law means that your contractual obligation is now illegal; or
- during litigation, a court deems a clause too restrictive on trade.
Typically, a severability clause is in two sections. Firstly, it will preserve the rest of the agreement when a particular part is found unenforceable. Secondly, the clause will provide a way to modify the unenforceable parts or remove them from the contract.
How Should I Draft a Severability Clause?
Severability clauses often take a generic, boilerplate form. Although this makes them easy to draft, it can be difficult to enforce. A generic severance clause will demonstrate the parties’ intention. However, you should note that it might be challenging to clarify when and how severance should occur.
You will find an example of a severability clause below. However, this is simply a guide. Instead, severability causes should reflect the specific intentions of the parties:
Continue reading this article below the formThe invalidity of any provision in this contract will not impact the validity of any other provision in this contract. Any invalid provision shall be treated as removed from this contract to the extent of its invalidity. The contract shall be interpreted as though it did not contain said clause to the extent of its invalidity, and the remainder of this contract should continue to be in full effect.
Benefits of a Severability Clause
There are several benefits of including a severance clause in your commercial contracts. An outline of these advantages is below:
Salvage an Agreement
One key benefit of a severability clause is that it can salvage an agreement. If there is no severance clause and a contract provision becomes invalid or unenforceable, the entire agreement is at risk of being deemed unenforceable. Having this clause prepares for such events. Furthermore, it mitigates the risk of this occurring.
Adapt to Changes in Circumstances
Additionally, severability clauses allow for changes in various circumstances. A severability clause enables the severance of any clauses that later become invalid or even illegal due to changes in legislation or circumstances. This is particularly pertinent for commercial contracts that expect to take place over an extended period. Commercial contexts are constantly changing, which means flexibility is essential.
Identify Important Provisions
Severability clauses have the additional benefit of identifying the most important provisions of a commercial contract. This is because a severability clause can remove any provisions irrelevant to the contract’s overarching purpose. As a result, the clause protects the integrity of the contract.
Ensure Fairness
Another advantage of severability clauses is that they ensure fairness. If a court deems a particular provision invalid or unenforceable, each party can ensure that the rest of their agreement remains intact. This promotes fairness within the agreement between parties. However, to ensure fairness, it is important to draft severability clauses that are specific to the commercial contract in question. If there is any confusion surrounding the severability clause, it will not be easy to enforce.
Notify Intention
Another significant benefit of including a severability clause in your commercial contract is that it notifies the court of the parties’ intention. If another clause is void or unenforceable, the severance clause will preserve the original intention of each party. In addition, with the knowledge that the parties intended to sever only irrelevant clauses, the court will be able to make a more fair decision on any associated disputes.
Key Takeaways
A severability clause is a popular provision to include in commercial contracts due to the number of advantages it contains. These advantages include the ability to:
- salvaging an agreement;
- adapting to changes in circumstances;
- identifying important provisions;
- ensuring fairness; and
- notifying intentions.
If you need assistance preparing a commercial contract, our experienced business lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page
Frequently Asked Questions
A severability clause is a provision included in many contracts. This provision allows parts of a contract to be severed if they are later found to be unenforceable or void. If you choose to include a severability clause in your contract, you must draft it properly to receive its benefits.
There are several benefits of including a severability clause in your commercial contracts. These benefits include that they allow for salvaging an agreement, adapting to changes in circumstances, identifying important provisions, ensuring fairness and notifying intentions.
We appreciate your feedback – your submission has been successfully received.
