From the very start of your business you could find yourself agreeing a contract with another business or individual. So, what do you need to know to understand the terms and get what you want for your business?
Rachel Gillan and Agne Zasinaite are solicitors in MacRoberts’ Intellectual Property and Commercial Contracts Team. They share their expertise on agreeing a contract.
A lawyer’s top tips to agreeing a contract: What should you look for?
Contracts are everywhere. Granted, it is not the sexiest subject, but having a good understanding of contract law will do wonders for your business.
Agreeing a contract can be a pretty daunting task when you have little to no experience. If you often find yourself staring at page upon page of words with no understanding of what they mean, read this guide to shed some much-needed light on the pesky legal mumbo-jumbo.
The general structure of a contract:
Whilst every contract is different, they do often encompass a similar structure and use similar terminology.
The parties to a contract are those who are directly involved and will be required to sign. A ‘party’ can be either a person or a company. A ‘third party’ is a person and/or company who is not directly involved in the contract but may be affected by it.
These are the heart of the contract. Why are you entering into this contract? What do you want from the other party? What is important to you? This section sets out what each party will do under the contract. For example, if you are buying products from a supplier, you will want to ensure you cover issues such as: the type of products you want, the quality you expect, the time frame you want it delivered etc.
If something goes wrong, what are you on the hook for? This clause will detail what a party can be forced to do and/or pay in the event of a breach.
This clause will set out your options if the other party fails to adhere to their obligations under the contract – usually referred to as a ‘breach of contract’. The standard remedy available, in most jurisdictions, is damages (i.e. compensation). There are other remedies available such as interdicts and specific performance. However, these types of remedies are granted by the court and the options available will differ between jurisdictions.
This clause does what it says on the tin – it requires certain information to be kept confidential. The information specified here can be anything: personal information, financial records, the secret recipe for KFC chicken, you name it. If you want something kept private, make sure it is detailed in this clause.
This clause sets out how long the contract will last for and how it will end. It will also detail any obligations that continue to apply after the contract has ended.
Governing law/ Jurisdiction.
This clause details the law that will govern the contract and will be applied in the context of a dispute. For example, if you are a Scottish business, it is highly likely you will want your dispute to be dealt with in Scotland. Similarly, if you are an English business, it is highly likely you will want your dispute to be dealt with in England. Each jurisdiction has its own laws, so it is important you choose a jurisdiction you are comfortable with.
This is where each party will sign and bind themselves/ their company to the contract. It is crucial that the correct party signs in the correct space and that each party has the capacity to enter into the contract. If you are signing on behalf of a company, make sure you have the authority to do so. If you are signing on behalf of yourself make sure you are of age.
Important questions to ask yourself when agreeing a contract:
At the end of your review, make sure you can confidently answer the following questions:
- 1. Who am I contracting with?
- 2. What are my responsibilities under the contract?
- 3. What does the other party have to do?
- 4. How long does the contract last?
- 5. How do I cancel or terminate the contract?
- 6. What happens if things go wrong?
- 7. What happens if I am at fault and I breach the contract?
- 8. What am I liable for?
If you are not happy with the answers, then do not sign the contract! Equally, if you do not know the answers, do not sign the contract!
Some final words of wisdom:
Read it, read it, and then read it again. Before agreeing a contract, read it at least three times: an initial high-level review, an in-depth ‘line-by-line’ review, and a final review. This includes the small print!
Negotiate. Do not be afraid to negotiate the terms of the contract to get what you want. The other side will be acting in their own best interests, so make sure you are doing the same. Be your own advocate.
Ask questions. If you do not understand something, ask the other party to clarify. There is no shame in asking questions. In fact, if anything, it makes you look more professional and responsible.
Please note, Consumer Contracts are significantly more regulated (see Consumer Rights Act 2015) and therefore if your business sells to individuals who are consumers, there will be certain terms that will appear in such contracts that may not in Business to Business (B2B), and you should take extra care when reviewing or preparing such contracts.
Written by Rachel Gillan and Agne Zasinaite, who are both solicitors in MacRoberts’ Intellectual Property and Commercial Contracts Team.