7 Commercial Contract Mistakes

According to research carried out by World Commerce & Contracting the main purpose of a contract is:

Firstly – A record of rights, responsibilities and obligations and

Secondly – Providing protection and remedies in the event of a dispute

Important factors for any business, but how can you ensure your contracts cover these areas and are suitable for you and your business?

 

All business contracts come with risk and require attention to detail. We set out below some of the typical commercial contract mistakes businesses can make.

 

  1. Using free, generic or other businesses’ contract templates

There are several reasons why a ready-made contract form (or one you think you might base yours upon which you have seen in use by someone else…) is not recommended for you and your business. They include:

  • Business contracts are drafted from the best perspective of one side over the other; is the form of contract you were considering using beneficial or detrimental to your side of the deal?
  • They may lack crucial recommended content for your particular business or way of operating.
  • Contracts for one type of business may not be relevant for other types of businesses; or, even in the same operating sector, the approach of one business may not be suitable for your business.
  • Contracts must be relevant in your jurisdiction. Many free online templates originate in the US. In the context of the UK alone, across (i) England & Wales; (ii) Scotland; (iii) Northern Ireland; and (iv) the Isle of Man or the Channel Islands, the law can be quite different.

 

  1. Seeking legal advice too late

This may sound obvious, but have a business contract lawyer review any contract before you sign it to make sure it protects you, includes all of the relevant terms it should and does not put your business at risk.

 

  1. It’s all in a name – failing to identify the parties properly

Unless you have the correct and full legal name for each party to the contract, you might have difficulty enforcing it if there are problems. On a related theme, does the contract need to cover other companies in your or the counterparty’s group?

 

  1. Who, what, why? – failing to draft the Recitals

A recital, is a preamble to the contract’s operative provisions. It outlines who the parties are, what the contract is about, and why the parties are signing the contract. The recitals can be overlooked during the contract drafting and negotiation phases. If a dispute arises over contractual interpretation, the court or arbitrator may use the recitals as an aid to interpretation of the contract. A focus on the operative provisions of the contract is very important, but do not forget to set the scene and clearly record background information and purpose of the contract.

 

  1. Failing to address any ambiguous language

Contracts can contain vague and ambiguous language. Using words without clear definitions is dangerous to contracting parties because it places the interpretation of such language in the hands of someone else. Ambiguities are normally construed against the drafter of the contract. It is possible that ambiguous language will have three interpretations – yours, the other parties, and the courts or arbitrators. A court or arbitrator may be bound to interpret such a clause using an approach which might be different from the custom and practice of your industry or even your intention at the contract’s formation. Your contracts lawyer will ensure that there are no ambiguities or unclear provisions.

 

  1. Failing to specify performance obligations

This can cause future confusion and conflict about what is expected of each party. Parties may also disagree about what constitutes a breach of contract, which can lead to expensive and time-consuming legal battles. It is therefore important to be very clear about the performance obligations in any commercial contract, and to have a clear understanding of what will happen if one party fails to meet their obligations.

 

  1. Not taking into account termination rights

Not taking into account termination rights can often lead to misunderstandings and disputes, which can be costly and time-consuming to resolve. It is therefore important to be aware of the termination rights that are available to you and to the counterparty and to ensure that your contracts reflect this.

 

Ensuring you have all these points covered will help you to protect your business. Mattersmith is a regulated law firm who believes that new business ideas deserve legal support that is accessible and affordable regardless of the size of the business, so that creative people can realise their dreams, confident that they are being legally effective and compliant.

We achieve this via client focused, agile services that use cloud-based technology to accelerate legal advice and provide tools that help clients trade more productively and transparently. Via Contractsmith, our virtual contract assistant we empower business owners to attain confidence, self-sufficiency, and legal peace of mind regarding their commercial contracts, with 24-hour support via our proprietary platform or bespoke legal advice as required; protecting a client’s interests with clear and enforceable documents, delivered on time, and within budget; and the ability to manage relationships with customers, suppliers, and partners. Contact us to find out how we could support your business: Mattersmith Contact

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