Warning Signs in Business Contracts
Contracts are an inevitable part of doing business. In business, contracts are the foundation of partnerships, securing services, and supplier relationships. For business owners, it is critical to understand the possible issues that could arise in any business agreement. If a contract is not reviewed and negotiated carefully, it can also pose many risks. Below, one of our Utah business law lawyers outlines some red flags to watch for when drafting or reviewing your business contracts.
One-Sided Clauses
One-sided clauses greatly skew the rights and obligations of the contract’s terms to favor one side over the other. This can result in contractual relationships that are unfair. Examples of these clauses include unreasonable penalties for even minor breaches of the terms, such as severe default remedies or excessive late fees. Furthermore, some contracts may give one party extensive rights to terminate the contract or unilaterally modify the terms, which puts the other party at a serious disadvantage.
One-sided clauses are particularly harmful in industries that deal with large projects and investments, such as construction, where the stakes are very high. It is important to work with a Utah business law attorney who can negotiate and revise contracts to include balanced terms that protect you from operational issues and financial distress.
Vague Terms
Vague terms in a contract do not clearly outline expectations, which can lead to legal disputes and misunderstandings. Some terms where clarity is important but often missing are performance standards, scope of work, payment processes and timeline specifics. For example, without a clear definition of the goods or services to be delivered and specific deadlines, it can become challenging to enforce the terms of the contract.
Vague terms are easier to exploit, either unintentionally or intentionally, which can cause legal disputes. A business law attorney can draft contracts that are clear and precise to protect your interests, mitigate the risk of disputes, and provide a clear pathway for fulfilling contractual obligations.
Automatic Renewals
Although they are convenient, automatic renewal clauses can trap a business into an extended agreement that no longer aligns with market conditions or that meets their needs. Often, these clauses include a renewal for the same amount of time as the original contract. They also can require notice of cancellation many months in advance. This can create a financial burden if a business owner misses a cancellation deadline.
Unfavorable Jurisdictions
Jurisdiction clauses specify which laws will govern the contract and stipulate the location in which disputes must be resolved. Unfavorable jurisdictions increase legal costs, complicate litigation, and can lead to a biased outcome. For instance, a business operating in Utah may deal with suppliers in another state. It is important the contract is governed by the law in Utah to avoid the drawbacks of remote legal proceedings.
Our Business Law Lawyers in Utah Can Draft Your Contract
Understanding the warning signs in business contracts is more than just due diligence. It is an important strategy to protect your business’ interests. At AGS Law, our Utah business law lawyers can draft and review your contracts to ensure the terms are favorable, balanced, and governed by state law. Call us now at 801-477-6144 or contact us online to schedule a consultation and to learn more about how we can help.
Source:
le.utah.gov/xcode/Title15/C15_1800010118000101.pdf
