When reviewing a new business contract, eyes typically go to the core terms: the price, the delivery date and the scope of work. It is tempting to skim the dense legal paragraphs at the end. However, overlooking this “boilerplate” language is a significant mistake.
These clauses are your primary protection when a business relationship goes wrong. Understanding them before you sign is the key to preventing costly disputes. Here are three examples of clauses that demand your attention.
The dispute resolution clause
This clause dictates how a disagreement will be handled. Will it go to mediation, arbitration or a lawsuit? It also specifies where the proceedings will take place.
Defining this process upfront prevents a secondary battle over how and where to resolve the primary issue, saving significant time and money.
The force majeure clause
This clause, sometimes called an “act of God” clause, addresses unforeseeable events that prevent a party from fulfilling its obligations. This could include a natural disaster or a major supply chain disruption.
It defines who bears the financial loss when circumstances are outside of anyone’s control, providing crucial clarity in a crisis.
The attorney fees clause
This powerful clause determines if the winning party in a legal dispute can recover its legal fees from the losing party.
The presence or absence of this single sentence can dramatically change the financial risk of a lawsuit. It can influence your decision to enforce your rights under the contract.
A contract is a tool for risk management
Investing the time to consider these worst-case scenarios is vital for your company’s financial health. A proper contract does not just begin a partnership. It protects your business when that partnership is over.
If you are entering a significant new agreement, consider speaking with an experienced business attorney to ensure your interests are secure.