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As a supplier of products or services, your contractual documents are vital to protecting your business from risk. Clarity is essential in commercial contracts, as unclear contract terms carry high risk. Commercial parties must consider clear contractual obligations to avoid ambiguity. Unclear contract terms are problematic and high-risk and can give rise to disagreements and disputes. This article will explore some unclear terms that could result in disputes.
Why is Clarity Vital in Commercial Agreements?
A vital purpose of a contract is to create a clear legal relationship, setting out each party’s contractual obligations. Contract language is essential, and unclear language can result in misunderstandings around contract interpretation.
If contractual terms are ambiguous, this can give rise to various problems, such as:
- parties misunderstanding their obligations and failing to comply with them;
- mismatched expectations result in arguments; or
- in the worst case, disputes where a party believes another has breached their contractual obligations.
Disputes are time-consuming, costly, and highly stressful. As such, you should work to avoid conflicts at all costs. Therefore, parties should take the time to ensure that their contracts are drafted clearly from the outset to avoid potential disputes later on.
Which Unclear Contract Terms Can Result in Disputes?
Let us explore some common vital terms that can often lead to disputes if they are unclear.
1. Unclear Products or Services Specification
Clearly and correctly defining which products or services your company will deliver to a customer is vital. Specific and clear terms will help avoid contract ambiguity and room for misunderstandings.
For example, your contract should expressly describe the products and services you have agreed to deliver. You should also clearly state your timeframes for delivery and costs. The customer should review and approve the specifications for your products or services to ensure they are happy to proceed.
If your terms around this are vague, there could be uncertainty about what the customer expects, leading to mismatched expectations and disputes.
For instance, if you create a business marketing leaflet for a customer, how many amendments will you make to it once the customer has reviewed it? How many versions do you agree to deliver as part of your scope, and what if the customer requests more edits? Will you charge them for one draft, or will you offer a fixed fee for the work even if the customer requires several redrafts of the same leaflet?
If the customer misunderstands what work you have agreed to deliver, this could lead to arguments and potential disputes. As such, your contract should lay out exactly what work you will provide as part of the marketing leaflet instruction and the associated costs.
2. Unclear Termination Rights
Unclear termination rights are a common cause of business disputes. Your contract must specify how a party can exit it and the termination triggers.
There are various risks associated with unclear termination rights. For instance, termination could be ineffective if a party terminates without the right to do so or does not provide valid notice to terminate.
A party terminating the contract must justify that it has terminated it correctly. Correct termination will depend upon an interpretation of contractual wording. Getting this wrong could lead to arguments and escalate into disputes.
For instance, if the contract specifies that a customer can terminate if there is a ‘serious breach’ by the supplier, but the contract does not define what constitutes a serious breach. In such a case, a customer could argue the supplier has committed a serious violation, whilst the supplier could disagree.
3. Unclear Payment Terms
Unclear payment terms can often lead to disputes. It is vital that payment terms are robust and well-defined and that customers know what they need to pay and when.
Unclear terms could include:
- failure to specify the timeframes customers need to pay their invoices;
- failure to expressly state that customers must pay additional charges, such as the supplier’s reasonable business expenses; or
- failure to specify who covers certain costs, e.g. the cost of delivery of products.
If your payment terms are too unclear, customers may not pay enough, pay late or fail to pay altogether. For instance, they could raise a payment dispute if they believe you have charged too much or incurred additional expenses they did not approve.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
You may also need to take legal action against your customer for non-payment – for instance, if they continue to owe you debt after months of chasing them.
As such, it is vital to ensure your payment terms are clearly laid out in the contract, and the customer has understood them before entering the agreement with you.
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How to Avoid Unclear Terms-Related Disputes
The risks highlighted above are severe and could be avoided using clear contract terms. Litigation could mean you incur significantly more significant costs than the costs of preparing a well-drafted contract from the outset.
You should ensure your contract is clear and well-drafted to avoid potential disputes. Explicit language, the correct use of definitions, and careful attention to contractual wording help provide clarity.
If you would like help drafting a clear commercial contract, you can consult an experienced commercial contracts lawyer to support you.
Key Takeaways
Unclear terms in a contract can have severe and damaging implications, from customer dissatisfaction to disputes. Particularly problematic terms include unclear termination rights, payment terms, and obligations related to the specific products or services delivered.
As a supplier of products or services, it is vital to take time and give your contracts careful consideration and attention. Ensure your terms are clear and straightforward so your customers can easily understand them. This will mean there is less chance of mismatched expectations and disputes arising.
If you need help drafting a contract, you can contact LegalVision’s experienced contract lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
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