Drafting Notice Clauses: Physical vs. Virtual Delivery, Time Limits, Form and Content, Identifying Recipients

Description

Almost all contracts include a clause on how and when to give notice and whether to terminate, renew, or demand a cure or refund. Most agreements use simple, boilerplate language without investigating whether a more robust clause may benefit the client.

The time to provide notice can vary, but when that period starts needs to be clarified. Disputes often arise when a party is aware of a potential claim and the time limit for giving notice begins to run. Contracts also vary on the detail required for a claim and whether notice is a single or multi-step process. Some notice provisions include requirements for supporting information. While it may be onerous, knowing detailed information to compile and provide in a short time is critical before a problem arises. The contractor must prepare to meet the requirements with heightened record-keeping processes, among other steps.

Agreements commonly designate a specific person or representative as the recipient of any formal notice required by the contract. Be aware of who that person is and the process for changing the designated recipient. The format of delivery needed is another crucial consideration. Most contracts require that notice be in writing; however, disputes have arisen over how "in writing" is defined.

Some successful arguments maintain that project documentation (such as meeting minutes and project schedule updates) was sufficient written notice of a claim versus a more typical formal claim letter. Additionally, in this era of electronic communication, such as emails and text messages, it is essential to avoid disputes over what "in writing" means and whether notice can be given electronically, by physical mailing, or both.

How state courts interpret compliance with notice provisions also varies. Courts in Florida, New York, Washington, Ohio, Massachusetts, and New Jersey have at times found that parties can be completely barred from recovery if the contractor fails to comply with every requirement of the operable notice provision.

For example, in the recent Massachusetts case of Endicott Constructors Corp. v. E. Amanti & Sons Inc., Endicott could not provide evidence it had given proper notice within seven days as required by the contract for an extended time claim. The court confirmed that a failure to comply with the notice provision should preclude all relief sought by the claim.

A recent Texas decision ruled that notice provisions in contracts must meet specific requirements of the substantial compliance test. The holding in James Construction Group L.L.C. v. Westlake Chemical Corp., 65 Tex. Sup. Ct. J. 1096 (2022) illustrates that drafting notice provisions in commercial contracts can be as important a negotiating point as any other provision. Decisions on whether to require notice in writing or orally, through email or certified mail, one week or one month ahead of time, can all be important factors in completing a deal.

Listen as our expert panel discusses the best practices and finer points of drafting a notice clause that will meet the individual client's needs and survive state court challenges.