Many times clients will be exposed to a variety of contracts drafted by a variety of lawyers, which they inevitably compare to their own default contract. This frequently leads them to ask the question, “Should I have something like that in my contract?” The answer to this, and most other legal questions, is “it depends,” but below are a few questions to consider before deciding whether or not to include a particular clause in your contract.
What is the purpose of this provision? What would happen if I didn’t include it?
One of the main reasons for drafting a contract is to mitigate risk for both parties, or to assign risk to the party that is most able to protect against it. Of course, certain provisions should be included in every contract. For instance, in a service contract it’s a good idea to include what services will be provided and how much those services will cost. But beyond the essential provisions in a contract, you should be asking yourself, “why do I want this language in the contract?” If the provision isn’t assigning risk, or otherwise defining the relationship between the parties, you might want to think twice before including it in your contract.
What are the consequences if this provision is breached?
Another thing you should consider before including a provision in your contract is the consequence to the parties upon breach. Contract provisions contain obligations and promises from one party to another, a breach of which could force a variety of consequences such as an automatic termination. There may be consequences of the breach that affect your dealings with other parties as well, such as third party vendors, or your insurance company. When deciding whether or not to include a provision in your contract you should examine the language and its interplay with your existing contract language. Figure out what all the consequences of a breach of the provision are and whether those are intended.
Are there any other things I should consider before including this provision?
Remember that the contract is often the first official thing you do in your new business relationship, and can play a key role in setting the tone of how you and the other party will transact with each other. With that being said, when considering whether to add in a new provision you should also consider fairness, and the way the new provision could affect the other party’s perception of how you do business. Look at the language of the provision and determine whether or not it creates an unnecessary burden, or is particularly onerous on the other party.
After considering everything above you should do a balancing test to determine if the additional provision is something you want in your contract. For instance, maybe something seems unfair to the other party, but it protects you against a very likely risk that could have a large effect on your business. Even though it might be unfair, this would be something that you would probably want to include. On the other hand, something that doesn’t decrease your risk at all and seems very unfair to the other party would probably be best left out.
Finally, you know your business better than anyone, but the best thing to do when you have a question about adding new language to your contract is to consult with an attorney who can explain the risks and benefits of adding the new provision so that you can make an informed decision.
Have a question? Contact me on twitter @matthewsherlock
Disclaimer: This is a blog, not legal advice. If you are looking for legal advice you should contact an attorney. This post is intended for a general audience, as my general reflections on a particular subject . Nothing in this post creates an attorney-client relationship.