Do I Need a Lawyer for this Contract?

Do I need a lawyer for this contract?

Key Points:

• Not all contracts need a lawyer to review them
• Most contracts contain 3-4 key terms
• High value or complex agreements benefit from legal advice

Do you ever get sent someone’s terms and conditions and, as your mouse hovers over a check box asking you to “click here” to agree, you wonder whether you should call a lawyer?

The answer I would give is “No”; you don’t need to call, email or even arrange a meeting.

If you want to know why I say this read on.

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When might I need a lawyer?

When you are an entrepreneur growing a business, or a business owner or a director managing risk - judging when to get legal advice and how much to spend can be tricky. This decision is very often a judgement call. Sometimes you only find out the answer to that question many months later - when something has gone wrong. The vast majority of transactions and business relations do not need a lawyer’s intervention. But some do. The key question then is; does your contract need legal advice? And how do you know when you need to instruct a lawyer?

Business contracts can come in many forms. Some of the key ones that I advise on include; Non-Disclosure Agreements, Terms and Conditions, Consultancy Agreements, Contracts for Services, Shareholder Agreements, Articles of Association, Share Purchase Agreements, Business Sale Agreements.

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Did I need to instruct a lawyer?

If you’ve ever had to deal with any of these then most likely you have either had a lawyer review them or considered instructing someone to do so.  But was it really necessary?

With the advent of open source AI many people, including lawyers, are asking whether AI could draft a contract for them. The short answer to that question is yes, it could. Before AI there were already template contracts available for purchase on the web, and even before then some people (shhh, don’t tell anyone!) would sometimes copy their competitor’s terms and conditions and adapt them for use in their own business. So the simple answer is that there are plenty of resources already out there to help you draft your own contracts and help you manage your risk; none of which initially need the help of a lawyer.

So if you were going to draft your own contract, or review one that has been sent to you, what should you look out for?

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What makes a good contract?

One of the best pieces of advice I was ever given in relation to unravelling the secrets of a contract was that in almost all agreements the key terms are contained within (often the first) 3 - 4 clauses. These are the ones which anchor the overall agreement and define the relationship between the parties. So what should be in these clauses?

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What are the essential terms?

• Parties: Make sure the agreement is between the correct people. Sometimes in contracts a mistake is made over who is to be bound by the terms. It may be an agreement which is recycled from a previous deal and the wrong party is referred to. Also consider whether anyone else should be a party to the agreement. You might be signing with a subsidiary of a large corporate and perhaps you need a parent company to sign the agreement and guarantee the (payment) obligations of the subsidiary.
• Scope: You need to check that you’ve agreed clearly what the other party will deliver. This clause should broadly answer the “who”, “what”, “where”, “when”, and “where” questions. Who will deliver the goods or services, what they will be? Where are they going to be delivered to and when they are to be delivered by? This should accurately frame the relationship between the parties. It’s also good to explore what might happen if the customer asks to increase or change what they have asked for. Will that increase the price? If so, by how much?
• Payment:  You should be clear about what and how you are going to be paid. The question to ask is “would a third party easily understand the payment terms”? Too often a contract has overly complicated payment terms that are hard to understand. If there is a dispute invariably it will be because there is a mismatch of expectations. What can often help is a worked example of what a typical price calculation might look like so both parties are clear as to who gets paid what.
• Liability: Liability is all about managing risk and anticipating the impact of what happens when something goes wrong. While most contracts operate without a problem you should consider capping your liability.  As a supplier ideally you would cap your liability at the level of the value of your services or goods. Alternatively, capping at the level of any 3rd party liability insurance you have in place means if things go wrong your insurance covers the claim and you don't go bust. As a buyer you might want to push for an indemnity so that you are not out of pocket for, by way of example, a breach of Intellectual Property Rights.
• Termination: All relationships will eventually come to an end no matter how profitable or productive for either party, and a good contract should not flinch from addressing this. Think of it as a commercial “prenuptial”. Have the discussion before you start business together about how you will bring the agreement to an end and what will happen immediately afterwards. Very often contracts have two types of termination provisions: one type giving a right to terminate “without cause” i.e. if one party changes its mind; and the other type “automatic termination” after a specific event e.g. insolvency or change of control. There should also be clear provisions on how parties disengage from each other, dealing with issues such as the handing back of property or data. It's much better to think these things through ahead of that event rather than let the relationship drift into the unknown.
• Boiler Plate: There are other clauses known as “boiler plate” which very often go into contracts including data protection, confidentiality, arbitration, jurisdiction clauses.  These have set wording and can be found in most contracts and added to the end of the above clauses for completeness. While these do need to be checked, they tend to follow a more standard format.

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In Summary

Arguably if you get the key elements of an agreement correct then the rest of the terms fall into place, and in my view there is a fair amount of “safe space” to negotiate basic commercial terms or a heads of agreement with “open source” resources.

So do you need a lawyer for all of that? No. But should you ever call a lawyer?  

Well that’s a very different question altogether. In simple terms, when the agreement is technical, complex or high value (for example if you are buying or selling a business) then you may want to consider taking advice. So in those situations – YES, that is the time to make the call and seek legal advice.

If you want to have a 30 minute complimentary initial conversation with us to discuss any of the above issues please get in touch.

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