5 Questions to Ask about Contracts

All commercial lawyers would advise their clients to never sign any contract without allowing their legal professional to go through it first. Every business person will need a contract of some kind as some stage in their business, whether it is with clients, suppliers, sub-contractors or a landlord. If the contract has been drawn up by that person’s lawyer, you should always get your own lawyer to read through it and find all those hidden clauses that are likely to cause you trouble in time, costs or some other way.

Your legal professional will then rewrite the contract to ensure it works in your favour as much as possible. There are five questions to ask yourself about contracts.

  1. What warranties are included? Warranties are all part of the contract, but if you breach one – don’t do what it says – then the other party can terminate the contract. If the contract is one that you’ve provided, make sure the warranties you offer are things that you can control.
  2. What happens at termination? Contracts sometimes have to be terminated before their term ends, for various reasons. It’s important to include what happens in such a case to ensure you are covered financially and legally. You don’t want to be left with out of pocket expenses. Or you might rather each party can walk away without any further liability. If so, it needs to be clearly stated.
  3. Did you provide an indemnity? These are one of the most negotiated parts of the contract and they allocate responsibility for loss or damage. You should never offer indemnity for the other person for things you don’t have control over or for things that are not insured.
  4. What is your own liability? Make sure it is capped, otherwise you may have to pay for things that you can’t afford. You need to know ahead of time what you are likely to be liable for. Claims that are unlikely to occur are ok, but everything else should be inspected by your legal counsel.
  5. What is consequential loss? This takes into account certain types of loss that may occur due to the original loss, such as emotional trauma. You don’t want to be liable for that, so it is wise to define this carefully, rather than just saying what you will be liable for. If you don’t, you could be sued years after the loss occurs for something that seems quite unrelated to it.

These are the kinds of things that can happen when you sign on the dotted line without having advice from a solicitor – one that works for you, not the other person.  But with the right advice that contract is unlikely to cause you any grief.

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