By Angela M. Ward, Attorney
Contracts are an essential part of small business life in Lancaster County, whether you are hiring employees, working with vendors, or leasing office space. While you may hope to save money by writing your own contracts or using online resources, that could be a big misstep. It is also a mistake to think you can simply sign on the dotted line without a thorough understanding of the terms and conditions of the agreement.
Contracts are official, legal documents. A poorly written agreement can result in a host of legal problems that can cost you money or even your business. Before you ask someone to sign an agreement or put your signature on one yourself, contact a qualified contract lawyer who can help you avoid pitfalls like unclear language and problematic clauses that won’t stand up under legal scrutiny.
Poorly-written contracts, whether you create them or sign them, can get you into trouble. With the help of an experienced business attorney, you can avoid the dire consequences of a bad contract, including:
Bad Contracts Don’t Address Breach of Contract
To be a valid contract, both parties must exchange something of value, such as money for goods and services. When one of the parties fails to deliver the expected goods and services, it is considered a breach of contract. A breach can occur anytime one party doesn’t live up to its end of an agreement. That is even more likely with a poorly written document that includes language that is either too vague or too complex. If your business is the victim of a costly contract breach, you may find it difficult to prove if the terms of the agreement are unclear. If you’ve been accused of breach of contract, an experienced contract lawyer can review the contract to determine if a breach took place and if you have a valid defense for not holding up your end of the agreement.
Bad Contracts Don’t Prevent Contract Disputes
A contract dispute often results from a misunderstanding or a disagreement over the terms of the document. This can occur when the language contains mistakes, complicated or unclear terminology, or poorly-explained technical terms. While disputes are possible with any contract, a well-written agreement will include an unambiguous dispute clause that outlines the procedure for handling, including everything from how and to whom a dispute will be reported to a timeline and a process by which it will be resolved. If you create or sign a legal agreement without a clearly-worded dispute clause, you may find yourself in a nuisance lawsuit, paying thousands in legal fees.
Bad Contracts Can Include Unreasonable Terms That Jeopardize Your Business
When you enter into a contract without the guidance of an experienced business attorney, you could find yourself agreeing to terms and conditions that are unreasonable, or even unachievable. Unusual or unreasonable terms in business documents can relate to a variety of issues. A non-compete clause might severely limit your company’s opportunities once the contract term has ended. Mistaken or intentional misinformation could mean your business has agreed to perform a task or service that will be far more costly or difficult than reasonably expected. Unreasonable arbitration clauses may make it difficult for you to find relief in a contract dispute.
Bad Contracts Can Put You at Risk for a Lawsuit
There are many ways in which a poorly-written document can put you at risk of a lawsuit. One study found that 43 percent of small business owners reported being threatened or involved in a lawsuit. Most litigation related to business contracts concerns breach of contract, contract disputes, and other issues surrounding the interpretation or enforcement of the terms of the agreement.
Sometimes, however, your legal agreement can put you at risk because of what it is missing. Without an arbitration clause, for example, any disputes that may arise will have to be handled through costly and time-consuming litigation.
While it may seem easier and cheaper to use online resources to create your contract, online templates are no substitute for a well-written agreement. An experienced business attorney can ensure that all of your arrangements note contingencies and contain legal protections that can save you from costly lawsuits.
Bad Contracts Can Keep You Locked Into an Agreement
While you may find it tempting to enter into longer-term contracts, the strategy may backfire on you in the long run. Initially, a long-term agreement may seem like a sound financial decision, especially if it appears to protect you from high annual rate increases. However, getting locked into commitments for extended periods can also limit you from meeting your changing business needs. For instance, being locked into a long-term contract for a certain type of technology may make it impossible to take advantage of an improved technology when it comes along. Long-term arrangements can also leave you stuck in a business relationship that’s gone sour.
Sometimes, you can find yourself locked into a long-term contract without even realizing it. Such is the case with documents that contain an auto-renew clause. This clause perpetually renews the agreement for an extended length of time unless the party gives written notice 30 days before the end of the current contract term. These clauses may go unnoticed when you sign a contract. Or, due to the length of the engagement, you may simply forget about them. Either way, they can keep you from pursuing a better deal or bind you to an agreement that no longer serves the best interests of your business.
Bad Contracts can Lock You Into an Unfair Agreement
A long-term contract may be a bad idea from a practical standpoint, but if the contract includes unfair terms, it could also be a very costly mistake. Unfair agreements are not necessarily illegal, but they could put you at a distinct disadvantage, especially if one party has all the bargaining power. Business agreements can also include unfair surprises or hidden terms included by one party that are not in line with the other party’s expectations. An experienced business lawyer can ensure that your contracts do not contain unfair surprises. As an additional safeguard, a lawyer also can ensure that any document you create or sign includes a termination clause that spells out the conditions under which it can be legally terminated, as well as the legal and financial consequences of failing to do so.
Bad Contracts Contain Unfair or Unreasonable Terms
One-sided contracts can include unfair terms that favor the party that drafted the agreement. For instance, an agreement may include an indemnity clause in which one party is left with all the risk. The party writing the document may demand to be held harmless for any losses, even if those losses were within their control. If you sign such a legal arrangement, you could set yourself up for huge financial losses with no avenue for recouping that loss. On the other hand, if you write such a contract, you could end up in court.
Bad Contracts Can Result in Loss of Revenue, Money, or Loss of Your Business
Small businesses are particularly vulnerable to the consequences of a bad contract. Poorly written agreements with problematic and unclear language or unreasonable terms are more likely to result in lawsuits. Litigation will always cost your business, not only in legal fees and possibly damages but also in company resources.
Even without litigation, bad contracts can cost you money, or even your business if you bear an unfair share of liability should something go wrong. An attorney experienced in contract law can ensure you have a sound document that mitigates risk, spells out contingencies, and creates legal protections to help you avoid significant losses down the road.
Contact Going and Plank to create, review, revise, and remediate all your business contracts.
Want to find out more about business law? Read these articles and blogs:
Or click here to discover an even wider range of legal topics in our legal blog.