Contract Review Checklist: 6 Common Contract Clauses To Look Out For

Contracts and agreements are integral to any business or startup. From an employment contract to signing with a new vendor to creating a commercial partnership, startups and business owners are repeatedly tasked with reviewing and signing several documents.

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One of the most common mistakes owners make is failing to review contracts extensively, which can lead to costly legal consequences in the future. This can easily be avoided by looking out for some of the most common contract clauses and having a contract review process in place to ensure parties involved come to a clear, collaborative agreement with acceptable terms for all.

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What is a Contract?

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A contract is a written or spoken agreement between two or more parties creating mutual obligations that are enforceable by law. Anyone, including individuals, companies, organisations, and corporations, can enter a contract.

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What is a Contract Review?

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A contract review is a thorough examination of a legal agreement before it is signed by the parties involved. This ensures that the document is clear and accurate and that all parties agree with the terms and conditions stated therein.

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Conducting a contract review is crucial as it helps startups and businesses reduce organisational risks. It also increases the chances of the agreement making a positive business impact for all parties involved. Foregoing a contract review means opening up your company to several risks if you fail to fulfil the committed obligations, including damaging your company’s brand and reputation and wasting valuable time and financial resources.

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What to Look Out For in a Contract

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Reviewing a contract can feel intimidating for anyone without a law degree. As a lawyer, here are key contract clauses I look for whenever I am asked to look over an agreement.

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IP ownership

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Intellectual property is among a company’s most valuable assets and can be vulnerable to theft, misuse, or infringement by other parties in your contract. You should ensure an ownership clause in your contract that establishes that your company owns all the IP rights to whatever product or service the other party (your vendor, for example) creates or delivers for you. It should also specify that the other party has no right to use, copy, modify, sell or disclose your IP to anyone else without your written consent.

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Termination rights

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Despite coming to an agreement, there is always a possibility that your terms do not work out as expected. A termination rights clause allows the parties to dissolve the obligation if it no longer benefits them. It specifies who in the party can terminate the contract, whether just one or both and how long the notice period is. It also identifies the consequences for any breach or serious misconduct in the contract.

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Dispute resolution

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It is also possible that conflicts arise while parties strive to fulfil the contract’s obligations. In this case, a dispute resolution clause is needed in the contract. This specifies how the parties plan to resolve these conflicts and helps parties maintain a positive and mutual relationship while avoiding litigation. Some conflict resolution methods include negotiation, mediation, or arbitration.

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Privacy & confidentiality

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A confidentiality clause is critical in any contract, especially when the parties involved must share valuable information to carry out the terms of the agreement. Within this clause, each party should include strongly worded language addressing trade secrets, confidential information, sales strategies, and any other sensitive business detail they wish to keep private from the general public. Some contracts that would benefit from a confidentiality clause include partnerships, joint ventures, and business negotiations.

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Sometimes, a non-disclosure agreement is warranted when a simple confidentiality clause is not enough for your needs. Consider creating this additional document to ensure your startup or business is fully protected.

Warranties

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A warranty clause can protect your party from being held liable if the other party has a negative experience with what you have provided to fulfil your contractual obligations. Similar to the limit of liability clause, this clause limits how much the other party can claim if they are dissatisfied with your deliverables.

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Payment terms

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Payment terms are another key provision to look out for in a contract. This clause specifies the amount one or all parties must pay when the contract is due. The payment terms also detail whether there is a minimum or limit on the amount a party has to pay, if parties can receive a refund given certain conditions, or if instalment payments are allowed.

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Who Should Review Contracts?

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All parties involved in the contract should undergo the process. For startups and businesses, it might begin with the individual who drafts the initial contract using a standard template. Afterwards, it is highly encouraged to employ the help of a startup lawyer to review the document.

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A startup lawyer not only reviews contracts but can also draft agreements that ensure terms and conditions are clear, enforceable and, most importantly, protect the startup’s interests. They can also keep track of important dates and deadlines in each contract, including contract duration, end period, and renewal. Lastly, they can review contracts periodically, whether for existing agreements or new documents. This is essential as it is an opportunity to improve contracts, fix previously overlooked clauses, or change the wording due to changes in industry regulations or guidelines that did not exist when the original contract was initially drafted.

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Conducting a contract review and analysing key provisions will undoubtedly take time, especially for lengthy and complex agreements, but it is a necessary step to lessen the risks for your business as well as increase your chances of executing a contract and delivering it as intended. When in doubt, consult a lawyer, as one misplaced comma or ambiguous wording can lead to a costly mistake for your business.

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For all your contract and startup needs, Lazarus Legal offers a flexible fee structure and options to suit your budget and needs. Try our “Start Up Meet,” a free 15-minute consultation with one of our legal advisors so we can discuss, assess, and advise you on the right legal support package for your business.