Most businesses run on various deals with other parties, including suppliers, landlords, service providers, and customers. However, business owners who enter commercial agreements may make avoidable errors that could cost time, money, and reputation if conflicts arise. Fortunately, owners can avoid many of these errors with attention and effort. Some of the most common contract mistakes that businesses make include:
Mistake #1: Relying on Verbal Agreements or Handshake Deals
One frequent mistake business owners make with their contractual agreements involves entering commercial relationships with other parties based on verbal agreements or so-called “handshake deals.” Although the law generally recognizes verbal contracts as valid, certain agreements require a written contract, including contracts that will take more than one year to perform, purchases of goods worth over $500, sales of interests in real estate, leases longer than a year, and commercial or business credit agreements. Parties who enter into these contracts without a written document may face significant difficulties enforcing purported obligations. Even when the law allows for a business agreement to arise from a “handshake deal,” not putting contract terms in writing can also put business owners in serious legal jeopardy, as future disputes may require expensive litigation to determine the parties’ respective rights and obligations under their agreement.
Mistake #2: Using Vague or Ambiguous Language
Even if a business owner has a written agreement, they may make a serious mistake by using vague or ambiguous language. Just as a verbal agreement can leave room for disputes over the parties’ respective rights and obligations, a written contract with unclear language can also lead to differing interpretations of the contract’s terms. Business owners can avoid ambiguous terms by working with experienced legal counsel who can identify potential issues in a commercial relationship and ensure the contract expressly describes the parties’ rights and obligations in those situations.
Mistake #3: Not Having Clear Termination Provisions
A small business may need to back out of a contractual relationship for financial reasons. However, business owners may make a mistake by not including express termination provisions that spell out how and when parties may withdraw from an agreement. When a contract does not give parties a clear right to leave a business relationship, small business owners can find themselves locked in bad deals. Clear termination provisions should describe the conditions under which a party may end the contract, what notice they must give to terminate, whether termination will require financial payments, and whether any contract provisions (e.g., confidentiality, non-solicitation, etc.) survive termination.
Mistake #4: Missing Dispute Resolution Provision
Business owners can resolve commercial disputes more efficiently by including dispute resolution provisions in their contracts. These provisions can govern where parties can file legal actions, which jurisdiction’s laws govern the dispute, and whether parties must submit to alternative dispute resolution procedures like mediation or arbitration.
Mistake #5: Using Generic Contract Templates without Legal Review
Small business owners may try to save time and money by using generic templates found online for their business contracts rather than having an attorney draft a custom agreement or review a modified template for suitability for the business’s needs and interests. Although working with legal counsel on a contract will require some money upfront, obtaining legal review can save substantially more money down the road if a dispute arises from an agreement.
Contact Our Firm Today for Guidance in Commercial Agreements
Don’t let mistakes in your business’s agreement lead to costly consequences. Contact Wayne A. Lamb Law today for an initial consultation with a breach of contract attorney to learn how our firm can help you avoid the common pitfalls small business owners make when negotiating and signing contracts.