What to consider when reviewing a legal agreement

 In Articles

Jack Wiston

Contracts are the backbone of business relationships, legal agreements, and everyday transactions. Whether you’re a business owner, an individual, or a legal professional, understanding how to review a legal contract is a crucial skill. A well-executed contract can protect your interests and prevent disputes, while a poorly drafted one can lead to costly consequences. In this article, we will delve into the essential steps and considerations for reviewing a legal contract effectively.

1. Understand the Parties Involved

The first step in reviewing a contract is to identify the parties involved. Ensure that all parties are accurately named and correctly represented. Verify their legal capacity to enter into the contract, including any necessary authorizations or approvals.

2. Define the Terms and Conditions

The title of the contract is not enough to determine the type of agreement being made. It is solely dependent on the terms included. Contracts should clearly define the terms and conditions of the agreement. This includes specifying:

The scope of the agreement:

a. What goods or services are being provided?

b. Duration: How long does the contract last?

c. Payment terms: When, how, and how much will be paid? Any penalties to enforce on a

late payment?

d. Obligations and responsibilities: What are the roles and responsibilities of each party?

e. Termination and exit clauses: Under what circumstances can the contract be terminated?

3. Review Legal Language

Legal contracts often use specialized language and terminology. Familiarize yourself with the contract’s terminology and consult with a legal professional if you encounter unfamiliar terms. Ensure that the contract’s language is clear, concise, and unambiguous.

If the contract is available in multiple languages, determine which language will take precedent when there is different meaning through translation.

4. Check for Compliance with Applicable Laws

Ensure that the contract complies with all relevant laws and regulations, including industry-specific requirements and local, state, or national laws. A contract that violates the law may be unenforceable.

5. Assess Risk and Liability

Examine the contract’s provisions related to risk and liability. Look for indemnification clauses, limitations of liability, and insurance requirements. Assess whether the allocation of risk is fair and reasonable for all parties involved.

An optional Force Majeure clause is usually recommended to be included in an agreement to protect the parties from any loss due to circumstances out of their control.

6. Consider Dispute Resolution Mechanisms

Contracts often include provisions for resolving disputes. Evaluate whether the contract specifies mediation, arbitration, or litigation as the method for resolving disputes. Understand the implications of these provisions and their impact on your rights.

7. Review Payment Terms

Payment terms are a critical aspect of any contract. Ensure that payment amounts, due dates, and methods of payment are clearly outlined. Pay close attention to any penalties or interest charges for late payments.

8. Confidentiality and Non-Disclosure

If the contract involves confidential information, intellectual property, or trade secrets, review the confidentiality and non-disclosure provisions carefully. Understand your obligations regarding the protection of sensitive information.

9. Renewal and Amendment Clauses

Contracts may include provisions for renewal or amendment. Evaluate these clauses to understand how and when the contract can be extended or modified.

10. Boilerplate

A boilerplate clause will end the contract and is expected as standard, especially within commercial contracts. The clause provides certainty in certain events which may result in dispute such as arbitration, assignment, force majeure and severability.

11. Seek Legal Counsel

While you can conduct a preliminary review of a contract, it is advisable to seek legal counsel, especially for complex agreements. An attorney can provide valuable insights, identify potential risks, and help you negotiate favorable terms.

Conclusion

Reviewing a legal contract is a meticulous process that requires attention to detail and a solid understanding of the agreement’s terms and implications. Whether you’re a business owner, an individual, or a legal professional, taking the time to carefully review contracts can save you from legal disputes and financial losses. Remember that legal contracts are legally binding, and thorough due diligence is essential to protect your interests and ensure the enforceability of the agreement. Do it right in the first place.

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