Whether for the purchase of a business, equipment, or real estate, most contracts contain standard terms, often referred to as boilerplate. Even though the terms may be standard, there are often subtle differences in the wording that can have significant consequences down the road. More importantly, even though terms may be typical in a business or real estate contract, they may be contrary to your business’ interests in a particular transaction.
Although the presence of boilerplate terms in a contract tends to disarm or otherwise lull the reader to sleep, these provisions should be closely scrutinized by a lawyer. You should also take the time to understand what they mean and why you are agreeing to them before you sign a contract.
Agree with Caution
Standard contract provisions have become standard for a reason – they can guard against subsequent contract disputes. So, they will be in most contracts you negotiate. However, going into the negotiation with an understanding of what these standard provisions are and what they mean for your business can help arm you in your negotiations.
Understanding the Fine Print
When you are faced with that long block of tiny text, make sure that you know what you are agreeing to. More importantly, be sure you understand the potential consequences to your business. A clause that seems minor could end up costing your company.
Often standard contract terms cover terms such as:
- Choice of law (which state’s law will apply if there is a dispute)
- Choice of forum (where can suit be brought – your state or another state?)
- Arbitration (do you want to give up your right to a jury trial?)
- Integration (you agree that there are no other promises or agreements that are not contained in the agreement you are signing)
- Limitation of liability or damages (this limits your claims if something goes wrong with a transaction, sometimes with devastating consequences)
- Attorney fees and costs (if there is a dispute, is the winner entitled to attorney fees?)
There are other standard terms as well. Make sure you know and understand these terms before you agree to them. They are important and govern your rights and liabilities if a problem arises later.
Negotiate Important Terms and Understand Their Meaning
Remember that it is possible to negotiate or redraft these terms, but only if you request it. While standard contract terms or boilerplate may seem unimportant at the time, they may later prove to make or break your claim.
Courts look first to what the contract states as the best evidence in determining what each party intended, so make sure your contract contains what you intended. Communicate clearly to your lawyer what you want the terms to include, then make sure your lawyer explains any provision you do not understand or have concerns about.
Lawyers do what they think is best for their client in drafting or revising a contract, and it is not common to sit down and explain every provision to client before signing. If you don’t ask for an explanation or clarification as a contract’s provision, your lawyer will assume you understand it and proceed to have you sign the contract.
Be an engaged participant in your company’s contracts.