Summary
- A contract drafted without legal input risks being unfit for purpose, missing critical protections such as liability limitations, force majeure provisions or appropriate intellectual property terms specific to your business activities.
- Unclear or ambiguous contract terms can lead to disputes, and certain terms such as penalty clauses or unfair liability provisions may be unenforceable if challenged, leaving your business exposed precisely when you need protection most.
- Businesses supplying goods or services to consumers or processing personal data must include specific mandatory terms in their contracts, and failing to do so can result in regulatory enforcement action and customer complaints.
- This article is a plain-English guide to the risks of drafting business contracts without legal advice, written for business owners in the United Kingdom by LegalVision’s business lawyers.
- LegalVision specialises in advising clients on commercial contracts, contract risk management and legal compliance.
Tips for Businesses
Do not rely on a contract template pulled from the internet without having it reviewed for your specific circumstances. At a minimum, have a lawyer check any contract before you use it commercially. If you are contracting with consumers or handling personal data, get legal advice on mandatory compliance requirements before your contracts go out.
Writing your own business contracts without legal input is a common shortcut, and an understandable one when time and budget are tight. But a poorly drafted contract can leave your business exposed to disputes, unenforceable terms and regulatory risk that could have been avoided. The difference between a contract that protects you and one that creates problems often comes down to the detail. This article will explore the risks of writing a contract without a lawyer.
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What Are the Benefits Of Working With A Lawyer On Your Contracts?
A contract is vital whether your business is supplying or purchasing products or services. Your business contract should set out each party’s obligations and key terms, such as:
- terms around payment;
- how to exit the project; and
- limiting liability if things do not go as planned.
Businesses often consult lawyers who understand business and legal issues and can help protect them from risk. This is because a specialist commercial lawyer will take the time to get to know your business and its risk exposure. The lawyer will then prepare a robust contract to help your business in various scenarios.
A lawyer can also help break down and explain complex legal concepts, ensuring you understand your contractual obligations and what can happen if you breach them. A lawyer can also advise you on best practices for contracts and contract risk management, for example, by using their legal expertise to guide you on specific clauses that may worry your customers or hinder potential deals.
Finally, a lawyer can help you when it comes to negotiating and enforcing your contracts. This is often where lawyers can add significant value. A lawyer can help guide you through the contract negotiations process, advise on which negotiations you could accept and help you address any complex legal arguments that arise. If the situation arises, a lawyer can help advice you on enforcing your legal rights if the other party to your contract breaches it.
What Are The Risks Of Writing A Contract Without A Lawyer?
Sometimes, a business may write a contract on its own and not seek advice from a lawyer. For example, a business may lack the time budget to invest in a professionally drafted contract. However, this approach can come with the following risks:
1. Not Fit For Purpose
Your contract must be suitable for your business activities. For example, a software-as-a-service supplier will need concrete licence terms for its users, covering a range of intellectual property licence issues. If you use the incorrect type of contract, your document will lack the critical protections you need.
You may not be able to foresee the various legal risks that could arise. For example, circumstances outside your control could arise and hinder the performance of your obligations. As such, your contract may omit specific provisions that are vital to protect your business from risk in the future.
Working with an experienced lawyer can help you contemplate potential risks so you can future-proof your contracts to protect yourself from potential issues later down the line. For example, a lawyer usually includes a clause relieving you of liability if unexpected outside events occur.
2. Lack of Clarity and Legal Risk
Contracts and their terms must be unambiguous. If not, this could lead to mismatched expectations between the parties and even disputes. Additionally, you may face difficulties enforcing terms that are unclear.
Additionally, there are specific terms that are high-risk and could have an impact on your contract and its enforceability. For example, penalty clauses and liability terms which are deemed unfair. If challenged in the courts, those terms may be struck out of your contract, leaving you without protection.
Without legal knowledge of such problematic terms, you may innocently include them in your contract. In contrast, working with a lawyer can help ensure that your contracts do not include terms that could be scrutinised and challenged.
3. Legal Compliance
A key benefit to working with a lawyer is their thorough understanding of the legal rules that apply to businesses. You need to be mindful of legal rules which could impact your contracts. For example, specific rules apply when:
- supplying goods or services to consumer customers; and
- processing personal information on behalf of customers as a data processor.
If your business engages in such activities, your contract may need to include specific mandatory legal terms, and you will need to follow strict legal rules.
If your agreement fails to do so, you could breach specific laws. This could result in multiple risks, including customer complaints and regulatory enforcement action against your business. If your consumer terms are deemed unfair, for example, they could even be held to be enforceable. By working with a lawyer, you can ensure that your business contract complies with any applicable laws.
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Key Takeaways
While writing your own contract is an option, you should approach this exercise carefully. There are many pitfalls that businesses commonly face when writing their own contracts without legal support. For example, writing a contract yourself could mean it:
- is not fit for purpose;
- misses critical terms you need for your protection; and
- fails to comply with mandatory legal rules.
As such, businesses commonly seek legal support from experienced commercial lawyers. Working with an experienced lawyer can help you avoid these risks and feel comfortable that your contracts are robust and legally sound. A lawyer can also help ensure you understand your contractual obligations, to help make sure you comply with your contractual terms.
If your business needs help with writing a contract or a contract review, LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What should a business contract include?
A business contract should cover each party’s obligations, payment terms, how to exit the arrangement and how liability is limited if things go wrong. The specific terms you need will depend on your business activities and the nature of the arrangement.
What happens if your contract terms are unclear?
Unclear terms can lead to disputes and make your contract difficult to enforce. Courts may also strike out terms that are ambiguous or deemed unfair, leaving your business without the protection you intended.
Can you use a standard template contract for your business?
Using the wrong contract type can leave critical protections out. A template designed for a different arrangement may not address the specific risks your business faces, such as intellectual property licensing for software suppliers.
What legal rules can affect the enforceability of your contract?
Specific rules apply depending on your activities. Supplying goods or services to consumers and processing personal data both trigger mandatory legal requirements. If your contract fails to comply, you risk regulatory action and terms being held unenforceable.
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