Posted: Thursday, 15 December 2011 @ 12:16
Businesses are constantly juggling resources to survive and grow. One of the decisions they have to make is when to take legal advice when entering into contracts. The reason they may choose to do without advice is the perceived cost. But the consequences can in many cases be more costly than the initial saving. I even come across businesses that fail following a costly court case when they thought they were adequately covered by a simple contract that didn’t in fact do the job it was supposed to!
If you decide on the DIY route, how will you prepare the contract? Will you base it one you have entered into previously? If so, is that from a competitor or a customer or supplier? Will you obtain a template from the internet, or will you write it yourself? The answer will probably be a combination of two or more of these possibilities. But what might be the risk to your business?
If you have entered into a similar business contract previously, did you have it drafted for you by a lawyer? If so, that might be a useful starting point, but how close are all the facts and circumstances of the new arrangement to the previous one? Any variations might require different treatment in the new contract. How long ago was it – can you be confident there have been no changes in the law which might affect the contract, or even worse, might make any of its terms illegal if it were to be entered into now?
If the previous contract was prepared by your customer or supplier did you have it checked out for you by a lawyer? A contract from your customer or supplier was almost certainly more in their favour than yours even if it was negotiated on your behalf.
If you’ve copied someone else’s document – maybe from the internet - you may be at risk of a claim for infringing copyright which could be both expensive and embarrassing for your business. If you have the contract drafted for you in the first place it can be slanted in your favour to start with even if you have to concede some points during the negotiations. Other than that you risk using a document that was originally drafted to favour the other party.
If you download a template, this will be a case of one size trying to fit all. Your business is unique and so are your important contracts with suppliers and customers. There’s really no such thing as a ‘standard agreement’ and, although these are certainly better than nothing, they won’t give you the security and confidence you need. Whenever things go wrong in business relationships, the first thing everyone looks at is the contract. You need to be certain that it addresses all the things that could go wrong in your business relationship and what you want to happen if they do. It’s unlikely that a general template document will do this.
If you write your own agreement you may well address the key areas that are important to your business from a commercial perspective, but are you confident that your contract will be legally enforceable and that you have not failed to cover other issues which might be of legal significance – such as when the contract comes into force, any instances when you may want to end it before it has been completed, and limiting the liability of your business to mention but a few examples? Are you prepared to risk consequences of your DIY version that you may not appreciate?
The advantages of having your business contract drafted for you by a solicitor include that he or she will take instructions from you about your particular circumstances and will then produce a document tailored to your needs and limit the financial consequences if things do go wrong. And it’s a fact of business life that things will occasionally go wrong and more so the larger you grow. A solicitor who specialises in drafting business contracts has up-to-date knowledge of the law and how a judge is likely to view your contract. You will also benefit from their skill and experience in asking the right questions to make sure the contract has exactly the right terms in it to cover your particular circumstances. Your solicitor will know the contract inside out and be there if you require any follow up advice or assistance, for example if someone fails to adhere to the terms of your contract.
Are you prepared to risk consequences of your DIY contract that you may not appreciate? If you would prefer peace of mind, call me, I can help.
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For free advice on this topic please call us on 0845 003 5639.
Blog by Sue Mann
Sue is an experienced commercial solicitor based in Birmingham from where she helps businesses all over the country advising on, drafting, and reviewing business contracts and commercial agreements. View profile
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