A single overlooked detail in a contract creates problems that will be expensive to resolve later. By understanding the key terms in agreements and negotiating conditions that favor your business, you’ll put yourself in a better position to protect your interests.
Essential Terms to Pay Attention to in Contracts
Some contract terms can have a more significant impact on your business than you might expect. One such term is the indemnification clause. This clause assigns responsibility for covering legal costs or damages if something goes wrong. Reviewing these clauses (and having legal counsel explain them to you) prevents legal complications. For instance, if a customer is injured by a product you sold but the issue is traced back to the manufacturer, an indemnification clause can shift the legal and financial responsibility to the manufacturer. Without this protection, your business could be liable for the costs, even though the fault wasn’t yours.
Make sure to carefully review any indemnification clauses in the contracts you sign. They should clearly state which party is responsible in the event of an issue. If the clause seems unclear or puts too much liability on your business, it’s worth negotiating for better terms.
Automatic Renewals and Your Right to End the Contract
Many contracts contain automatic renewal clauses. These clauses renew the agreement for another term unless you cancel it before a specified deadline. Missing this deadline can lock you into another year of services or products you no longer want or need. This can also mean unexpected expenses, especially if the costs increase over time.
To avoid this situation:
Always check for automatic renewal clauses and note any cancellation deadlines.
Set reminders to ensure you have enough time to evaluate the contract before it renews.
Check the termination rights. You should have the option to end the contract without a specific reason.
Your business is at a disadvantage if the contract only allows the other party to terminate early. Ensure the termination terms are fair and give you flexibility if circumstances change.
Liability Limits and Price Increases
Another clause you’ll commonly see in contracts is a limitation of liability. This restricts how much one party can be held responsible for if something goes wrong. For example, a vendor might limit their liability to the amount you’ve paid under the contract, even if their failure caused more significant financial losses for your business. Understanding these limits is essential so you can accurately assess the risks.
Also watch for fee increase provisions. Some contracts allow the other party to raise prices during the term of the agreement or upon renewal, and giving you notice before the increase might be optional. Read these clauses carefully so you’re not caught off guard by price hikes. Negotiating caps on fee increases or requiring a reasonable notice period can help protect your budget from sudden increases.
Truly Understand What Your Business Is Committing To
Reviewing contracts thoroughly before signing is crucial for avoiding potential issues. If you need assistance understanding your agreements or want to ensure your business is fully protected, contact Temple Law, PLLC, for a consultation. We’re here to help you ensure your contracts work in your favor, not against you.
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