Contracts form the foundation of almost every business relationship. Whether you are engaging a new supplier, signing a service agreement, or entering into a partnership, a well-drafted contract provides certainty and helps protect all parties involved.
Unfortunately, many businesses only discover weaknesses in their contracts once a dispute arises.
Here are five common contract mistakes that could expose your business to unnecessary risk.
1. Relying on Verbal Agreements
While verbal agreements are generally legally binding, they are often far more difficult to prove if a dispute arises.
Recording an agreement in writing provides clarity around each party’s obligations and significantly reduces the risk of misunderstandings. Importantly, “writing” is not limited to a traditional signed document: emails and other electronic communications may also constitute a written record and can be legally effective.
Practical tip: Keep a clear written or electronic record of important business agreements, even if you have worked with the other party for years.
2. Using Generic Contract Templates
Online contract templates may seem like a quick and cost-effective solution, but they are rarely tailored to your business or the specific transaction.
A template may omit important clauses or fail to comply with South African legal requirements, leaving your business exposed.
Practical tip: Ensure your contracts are drafted or reviewed with your specific business and industry in mind.
3. Overlooking Termination Clauses
Many businesses focus on how a contract begins but give very little thought to how it ends.
Without clear termination provisions, ending a business relationship can become costly, complicated and time-consuming.
A well-drafted termination clause should outline:
- when either party may terminate the agreement;
- the required notice period; and
- the consequences of termination.
4. Failing to Clearly Define Roles and Responsibilities
Unclear wording is one of the most common causes of contractual disputes and, in some cases, uncertainty may render a contractual term or mechanism unenforceable.
If responsibilities, deliverables, payment terms or other important provisions are vague, each party may have a different understanding of what was agreed.
Contracts should clearly define:
- each party’s obligations;
- payment terms;
- deadlines;
- performance expectations; and
- any consequences for non-compliance.
The clearer the contract, the lower the likelihood of future disputes and the risk that an important provision may be unenforceable for uncertainty.
5. Signing Without Legal Review
Businesses often sign contracts under pressure to finalise a deal quickly.
However, seemingly standard clauses can create significant legal and financial obligations that may not be immediately obvious.
Having a commercial lawyer review an agreement before it is signed can identify potential risks and ensure the contract properly protects your interests.
This small investment at the outset can often prevent far more expensive disputes later.
The Bottom Line
A well-drafted contract is more than just a legal document, it is an important business tool that helps manage risk, protect commercial relationships and provide certainty for everyone involved.
Taking the time to ensure your agreements are clear, comprehensive and appropriate for your business can save considerable time, cost and uncertainty in the future.
If you are unsure whether your current contracts provide the protection your business needs, seeking professional legal advice before signing can make all the difference.
Need advice on your commercial contracts? Contact Lanham-Love Attorneys Today
