Emily Hutchison Geddes, J.D., MBA
A contract, at its most fundamental level, is the bedrock of any working relationship. It specifies in clear language details like what each party involved can expect from the other, how and when they expect it to be accomplished, and what they each will receive in return. Whether starting a business or hiring a new employee, a well-outlined contract will help you protect your rights and interests. Especially in industries like healthcare and real estate, one’s business relationships are paramount. A properly drafted contract in place can help protect not just yourself but your enterprise as well.
In the process of drafting a contract, though, it is easy to make mistakes. They can be exhaustively long and riddled with new and unfamiliar terms. Astute attention to detail and a strong understanding of the goals of each party involved are essential.
As we look forward to the New Year, here are five common contract mistakes we believe are important to watch out for in 2023:
1. Not identifying the correct parties.
In general, a well-written contract is all about the small details. With these types of documents, even a minor error can come back to bite you or your business. So, getting names right on a contract is truly of the utmost importance. Failure to use officially-registered names can impact legal rights and can result in the contract being rendered unenforceable due to the misstated entity.
2. Using a template or a previous contract without reading through and revising thoroughly.
The internet is overloaded with generic contract templates. However, when parties use pre-built templates, they risk a greater chance of running into problems. A strong contract is one that is customized for your specific needs and agreement. Language found in generic templates can all too often be inapplicable and inadequate. Additionally, templates may also fail to meet the requirements of your state’s contract laws.
3. Being too vague and ambiguous.
When drafting a contract, it is essential to be as detailed and specific as possible. Vague and ambiguous language can leave too much open to interpretation and disagreement. On top of that, if a certain detail is not specified in a contract, then the client is not legally accountable for it.
4. Leaving out important provisions such as how to terminate the contract or what constitutes a breach of contract.
Due to the fact that contracts are so integral to any business relationship, it is imperative to include certain key clauses in the document. Without them, parties involved in the contract may be exposed to unnecessary risks. For example, termination clauses, which clearly define how and when each party can terminate their agreement, are crucial in a contract.
5. Not spelling out exactly how to resolve conflicts that may arise.
Within the world of business, there is always a chance that some sort of dispute will occur. However, by preemptively spelling out exactly how to resolve conflicts that may arise beforehand, a dispute can be resolved in a clean manner without damaging the business relationship between parties. Oftentimes, a contract will include a dispute resolution clause with the hopes of ensuring disagreements are resolved in the best manner possible. They can help avoid litigation, solve disputes easily, and – ultimately – salvage business relationships.
Contracts serve as a record of rights, responsibilities, and obligations. So, getting them correct is important for you and your entire enterprise. The errors outlined above can lead to confusion and delay or, even worse, personal liability or expensive and time-consuming litigation.
Some simple steps you can take to overcome these errors include reading the contract carefully and asking lots of questions until you understand exactly what each provision means for you and your business. Also, as a rule of thumb, remember that if something is not in the contract, it is not enforceable.
As the foundation of any business relationship, it is difficult to overstate the importance of getting your contracts right. Get in touch with our team to see how we can help strengthen yours.