Red flags in terms and conditions
If you are a business owner and you have your own legally drafted standard terms and conditions, naturally you would seek to enter contracts under your own terms and not the other party’s to reduce risk and liability to a foreseeable and reasonable level.
However, what if the other commercial party is a bigger player than you in the market sector that you are competing in and is offering a potentially lucrative contract?
What are the red flags you should be aware of and when should you simply walk away?
Here are a few tips:
Whose terms and conditions apply?
Disputes can arise where contracts are entered into on the basis of an exchange of a number of documents because it can be unclear as to whose terms apply, particularly where both parties have each insisted on using their own terms. A single signed contract which determines the applicable terms and conditions would be preferable.
Subject to contract
This means the parties do not intend to be bound so beware of entering an informal agreement by beginning any preparatory work or effecting performance and delivery. Set out your intentions at least by letter or email using “subject to contract” headings until a formal contract has been signed.
Irrelevant definitions
Check for any definitions and related clauses that are not relevant to the contract or that are in conflict with a related document or internal policy, e.g. the meaning of “Services” or “Deliverables” must reflect your business policies. Otherwise, this can create ambiguity and uncertainty if you end up in a dispute with the other contracting party(ies).
Time is of the essence
Do not accept this drafting unless you are sure you can adhere to the time periods stipulated. You will be liable for contractual damages if you miss dates under this heading.
Best endeavours
Be wary of this phrase as it is a higher threshold to reach than “reasonable endeavours.” Aim to qualify the words by scoping out what “best endeavours” actually mean.
Agreement to agree
For example: “any reschedule of works and corresponding price for the works shall be agreed between the parties.” Avoid such promises to agree future terms (even if in “good faith”). Instead, set out criteria or a mechanism for working out any new terms, or insist on entering a new signed contract.
Right to terminate
Check whether the contract gives both parties a balanced right; if the contract causes a significant imbalance in your rights and obligations, do not sign it until you have obtained legal advice from a commercial law practitioner.
Uncapped liability
A definite no. Or, if feasible, negotiate appropriate insurance to cover your liability up to a specified amount.
Naturally, as your business grows, the range of risks and liabilities are likely to increase. Ensure you have policies in place to manage those risks – obtaining suitable insurance cover should be one of those policies.
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