Every day, whether in business or personally, we enter into contracts. From shopping online or visiting the supermarket, to negotiating and entering into contracts in our working lives. In reality, it is not possible, or indeed cost effective, to have a solicitor review every single contract we enter into. There are, however, some important questions we should ask ourselves every time we enter into negotiations and any resulting contract.
Should I take legal advice?
If a contract is particularly valuable, whether in monetary terms or opportunity, high risk or for a long term, then you should consider taking legal advice. There could be complex issues that need to be considered in view of the nature of the contract, such as employment issues, property issues, commercial agency or intellectual property. Taking legal advice early can save time and money in the long run.
Who am I dealing with?
A common issue we see with contracts is that the parties have failed to identify exactly who or what they are contracting with. For example, are you contracting with an individual, a partnership or a limited company? You should make sure the contract is clear on this as if things do not go to plan, you need to know who to take further action against. If you are contracting with a limited company and contract is very valuable or important, you should consider asking for a parent company, or the directors of the contacting company, to guarantee performance of the contract.
Do I intend to enter into a binding contract?
A contract does not have to be signed or even written down to be binding on the parties that have reached agreement. You could find yourself bound to a contract by sending a fax, an email, saying yes on the phone or even on a hand shake. With this in mind, you should be careful to make clear, particularly during negotiations, that you do not intend to be bound to any contract at that stage. As a general rule avoid using “letters of intent” and “memorandums of understanding”, they can cause ambiguity. When negotiating, use the words “subject to contract”, particularly in negotiations that are written down, including in exchanges of email.
Is the contract complete?
Once your contract has been written down, consider whether it is complete and records the entire deal that has been reached. If you have relied on some particularly important information, perhaps in an email or in other documents, make sure that it is included in or appended to the contract when it is signed.
Is the contract clear about price and what you are getting for that price?
A lot of contract disputes arise because the parties have not made it clear in their contract exactly what is to be supplied and for what price. Is the contract that you are agreeing to clear on these points, how the price is to be calculated and when payment should be made? If the contract is for a long period of time, is there a right for prices to be increased?
Who owns the intellectual property rights?
If you pay a third party to create something for you, you might think that you would automatically own the intellectual property rights. However, you could be mistaken. If the contract is silent on ownership, then certain default provisions may apply. For example, copyright generally belongs to the author with an implied licence for the client to use the product of the services. These issues commonly arise in website design, so check the contract or any standard terms and conditions carefully.
When and how does the contract end?
A straightforward contract for the one-off supply of goods or services may end on delivery or completion of the services. However there may be ongoing warranties that impact on the contract, either expressly mentioned in the contract or implied by law.
If the contract is for a fixed term, how does this work in practice and is there a minimum term? Consider how the contract can be brought to an end and how much notice is required. Are there any circumstances when the contract could or should automatically end or allow one party to serve notice to end the contract before the expiry of any fixed term?
Asking yourself these 7 simple questions can help to avoid costly disputes and mean that if you decide that you need legal advice on a particular contract, you will have saved time and costs by having considered key points and have information to hand for your solicitor.