As an attorney, I’ve seen my fair share of confusing contracts. I’ve also had to counsel numerous clients when to sign on the dotted line and when to run from poorly-worded clauses destined to cause catastrophe.
It’s my job to understand my client’s goals and expectations when entering into a contract with another party. What is good for the other party may not be good for my client, even with the best of intentions. For example, I recently counseled a client who was looking to purchase a retail business that operated from a leased storefront. The current business owner’s lease contained obligations and liabilities usually associated with the landlord. My client comes along 15 years later and the liabilities are much more concerning because the building is that much older. I suspect that the current business owner has simply been renewing the same contract for years without considering the consequences. I advised my client that the contract needed to be updated to avoid being on the hook for those older liabilities.
Top Tips to Avoid Contract Conundrums
As a business owner, you should become familiar with every clause in a contract you plan to sign. Take it to your attorney and ask him or her to walk you through every point to remove guesswork. Here are four key recommendations to help you prepare before signing any contract:
1. Read the contract.
I know this sounds basic, but it is surprising how many problems occur simply due to something that might have been missed. Contracts may have misspellings, incorrect dates and locations, even clauses leftover from a template someone used to prepare an earlier document.
2. Understand what the contract states.
Reading doesn’t always equal comprehension. If you are unclear about a clause in a contract, make the other party or your attorney explain it further.
3. Recognize how the contract terms impact you.
Contracts exist for set periods and often place certain restrictions on the signers. It is important to recognize how these restrictions might impact your business or you as an individual in the future. You want to think about and understand the long-term ramifications of the contract provisions and the ‘what if’ scenarios that might occur.
4. Understand what the contract does and does not state.
People often think that a contract states one thing, when it actually states something completely different. We often hear people talk about “the spirit vs. the letter” of the law. In contract law, it’s all about the letter—exactly what the contract states—that is important. But understanding what is not stated is extremely important as well.
In the old days, it was not uncommon for a client to bring a lease agreement, employment agreement, or some other type of contract or agreement, and ask me, “Is it okay to sign this?” There are often more concerns and obligations incorporated into a contract today, requiring review and comparison to other contracts. Unfortunately, the day of the handshake agreement is over.
Steven Taitz is a founding partner of Roe Taroff Taitz & Portman, LLP, a Long Island-based law firm that provides a wide variety of legal services to businesses and individuals.