Business professionals enter into agreements and transactions with other people and businesses nearly every day. Be it a contract with suppliers or a contract regarding what work or services will be provided, contracts are a part of doing business. Contracts are intended to outline legal obligations that one party owes to another, so it is important to make sure they are clearly written in order to minimize confusion. A poorly drafted contract can not only confuse the involved parties, but it can also become the source of a lawsuit if there is a misunderstanding over the terms. A well-drafted contract, on the other hand, is a great risk management technique to help avoid misunderstandings that can lead to disputes and liability claims. Consider the following tips for writing clear, concise contracts.
Keep it Simple
Contrary to popular belief, contracts don’t need a lot of fancy verbiage and lengthy descriptions to make them valid. In fact, short, simple, clear sentences are preferred. Your contract will be clearer and easier to read if you write shorter sentences and include vertical lists or subparagraphs to break up complex ideas.
Write in the Active Voice
Always try to write in the active voice, wherein the subject is performing the action denoted by the verb. You want to be clear that the subject is responsible for the verb’s action. For example, “Tenant must pay utilities on the first day of each month,” as opposed to “Utilities are due on the first day of each month.” In the first example, it is clear that the tenant is responsible for the action but in the second sentence, there is no mention of the tenant at all!
Include All Details
Every contract should include all the rights and obligations of each party so there is no confusion about who is responsible for what. Include any details that are necessary to clarify these obligations. If at any point your business practices change after signing the contract, be sure to update the contract to reflect current practices.
Identify the Parties Correctly
It is important to properly name the contract’s parties so it is clear who is actually bound to the contract. For example, always identify business entities by their corporate name to avoid any confusion. You should always use the correct legal name so it is clear who is responsible for performing the obligations under the agreement.
Specify Payment Obligations
Be sure to specify exactly who pays whom, when the payments must be made, and the conditions for making payments. You want to use specific details to avoid any confusion. For example, if you are accepting payments in installments, be sure to list dates, times, and requirements. You also want to include acceptable methods of payment.
Include Dispute Resolution
It is common to have disputes over contracts so you should write into the agreements what you and the other party will do in the event something goes wrong. You can decide that the dispute will be resolved through arbitration or mediation rather than litigation.
Include Contract Termination
In many cases, contracts will eventually come to an end so you want to describe how that will take place. Specify whether the contract can be terminated any time or only if the contract is breached. You should also include any fees, charges, or other obligations that may result from early termination.
