Biggest Business Contract Term Pitfalls to Avoid

If you’ve been doing business long enough, contracts may start to feel routine and mundane. They may be just another part of going through the motions and checking off the boxes on your day-to-day business task list. However, treating them as such can lead to some serious pitfalls that come back to haunt you and your business for many years to come. It doesn’t matter how long you’ve been in business or how many previous contracts you have signed; don’t become complacent when dealing with legally binding agreements. Here are some of the most significant contract term pitfalls business owners need to avoid. 

Using Internet or Ready-Made or “Boilerplate” Contract Forms

Be wary of internet, ready-made, or boilerplate contract forms that another party requests you to sign. When another company provides you with their “boilerplate” contract, signing it without reading between the lines can make things much more difficult for you down the road. Of course, it’s always best if you can have your attorney read it over before signing it. They will likely point out several flaws in the contract that didn’t catch your attention. Even vague terminology can benefit from minor tweaks, and lawyers have strong experience in looking for these details.  

There are numerous reasons ready-made contract forms can become pitfalls. They include: 

• Contracts must be relevant in your locality. For example, a form contract from Utah may not contain clauses that are standard in all Colorado contracts.
• State laws vary. The law could differ from where and when the contract was initially drafted. Therefore, it’s imperative to review borrowed language from contracts for amendments to relevant state law, including additions and subtractions to the various codes involved in the agreement.
• Contracts are generally drafted from the perspective of one party over another. Therefore, you must take the time to ask yourself: is the form contract you are reviewing beneficial or detrimental to your goals?
• Contracts for one type of business may not be relevant for other types of businesses

Terms to Watch For

Inevitably, the terms that can get you into the most trouble will be the ones hidden in the fine print that are easily overlooked. You should always be on the lookout for terms such as: 

• Auto-renewal: These terms are tricky as they can rope you into continuing service or paying for a service you no longer need or want. A standard auto-renewal clause sounds something like this:

This Agreement shall be renewed automatically for succeeding terms of two (2) years each unless either party gives written notice to the other at least ninety (90) days before the expiration of any term of Executive’s or Company’s intention not to renew pursuant to Company’s bylaws. 

• Long written cancellation notice period terms: These terms give the contract signer the ability to cancel the service whenever they choose. However, it holds them to long notice periods, for example, 90 or even 180 days. If you decide you no longer need or want a service, this can be a long time to continue paying for it. Consider this example notice period clause:

In the event either party desires to terminate this Agreement or any Services hereunder, the party shall provide at least ninety (90) days prior written notice of the termination date to the other party; provided, however, that the receiving party may agree, in writing, to a shorter notice period. 

• Annual fee terms: Another fine print term is one concerning annual fees. If a company can sneak in these fees without you noticing them, they likely will. Annual fee term clauses typically look like this:

The Issuer will, or will cause the Servicer to, pay the Asset Representations Reviewer, as compensation for agreeing to act as the Asset Representations Reviewer under this Agreement, an annual $5,000 fee. The annual fee will be paid on the Closing Date and each anniversary of the Closing Date until this Agreement is terminated, payable according to the priority of payments in Section 5.7 of the Sale and Servicing Agreement or Section 5.6(a) of the Indenture, as applicable. 

All of these terms are often written in fine print, causing business owners like yourself to miss them. However, a business attorney can catch them. It’s ideal to have a seasoned business attorney review all your contracts from outside parties. Not only can they alert you to these potentially dangerous fine-print terms, but they can also give you the power to negotiate terms. Be sure to leverage this whenever it makes sense to do so. 

Let the Experienced Attorneys at Hackstaff Snow Atkinson & Griess Review Your Contracts

You’re a busy professional with a business to run. You likely don’t have the time, desire, or legal wherewithal to go over every contract presented to you with a fine-tooth comb, however necessary it might be. The good news is that we have the time, experience, and knowledge. So we can go over every small detail of each contract presented to you, ensuring that you aren’t just aware of it but that you also understand what it means and its potential implications on your business. Call our office today to learn more about our legal services for business owners and speak to one of our well-versed business attorneys.