When you are business or an individual who is entering into a contract, you will want it to be completed as soon as possible. However, there are always risks when entering into these agreements and time will need to be taken to ensure the content of the agreement is clear and is likely to avoid further legal disputes at a later date.
Steps to take
Below are some key steps to ensure the contract is drafted properly but does not negate the need to take legal advice about your specific requirements:
- Avoid verbal contracts – verbal contracts/ a gentleman’s agreement are still very common and continue to cause issues to this day. People will rely on this and they believe that it will suffice, however, in most cases it will not. A verbal contract will not set out the terms in enough detail and in the event of a dispute it can be difficult to prove that there is a legally binding contract. Agreeing to a written contract should always be the starting point for any contract negotiation. In some areas of law, a contract can only be legally binding if it is in writing, so always make this your first step when entering a contract.
- Negotiations before the contract is drafted – it is beneficial for the parties involved to discuss directly or through their solicitors, the terms that are to be included in the contract. This is usually done by way of heads of terms. This will set out what terms are to be included in the agreement and on what basis the contract is to be drafted. You will want these as clear as possible to ensure that there is no confusion on how the clauses are to be drafted in the contract itself. It also gives the contract a clear structure making drafting the contract more straightforward.
- Clear and specific clauses – it is important to ensure that the clauses are well drafted. If the clauses are ambiguous, it leads to differences in interpretation and this can lead to a dispute at a later stage. This is where the heads of terms are useful, as they will detail the specifics that are to be included in the contract.
Below are some examples of key clauses to have in a contract to help avoid litigation:
- Termination clause – A contract should contain a well drafted termination clause. This will set out how each party may terminate the agreement without any financial and legal consequences. It will include factors like the relevant notice period and will link with the dispute resolution clause (detailed below) as an alternative to terminating the contract if a dispute does arise.
- Restrictive covenant clause – this clause will include non-compete clauses which restricts the party who has terminated the contract to perform anything that may undermine the other party post-termination. It will usually detail how long they must comply with this clause post- termination and what they must not do during that period. This clause is a common cause of litigation and needs to be drafted to ensure that it does not create an unfair burden on the party exiting the contract. If these clauses are drafted broadly, then this clause will not be enforceable.
- Dispute Resolution clause – this clause is important in all contracts. It will detail the process for each party, in the event of a dispute relating to the contract. It will usually allow for the parties to try and resolve the issue within a timeframe between themselves. If it is not resolved within that timeframe, then it is common that mediation shall take place to try and resolve the dispute.
Where any business or individual is entering into a contract, it is important to make sure it is drafted properly. The best way to do this is to seek professional advice in relation to drafting a contract or even reviewing it. This may cost anything from a few hundred pounds to a few thousand pounds, however if litigation arises, and it reaches trial it can reach up to hundreds of thousands of pounds (depending on the size of the claim). Therefore, it is important to seek professional advice when entering a contract.
If you have a contract that needs drafting or reviewing, please contact Josiah Hincks Solicitors and a member of the litigation department will be able to advise on 0116 255 1811 or firstname.lastname@example.org
Article by Justin Wilson