In this post, we provide you with 6 top tips for making good business contracts. Whether you are starting out or already have a flourishing business, it is good to familiarise yourself with these tips. Please note, this list is not extensive, there is so much that goes into making good business contracts. If ever in doubt, contact a legal professional for advice.
1. Get it in writing
In South Africa, oral agreements are binding, but they are much harder to prove than written agreements. Oral contracts can easily be misremembered or misinterpreted. A written agreement provides a document that is clear proof of what was agreed upon. In the event of a disagreement, you have an easily accessible record of what each party’s rights and obligations are.
2. Keep the language clear and simple
You don’t need legalese to make a contract enforceable. Use plain language and short sentences. Ensure that what you are writing is clear so that you avoid ambiguity. Divide the contract into numbered paragraphs where each paragraph deals with a different topic. This way, you know exactly what is agreed upon. Unnecessarily long sentences, incorrect use of legal language or ambiguity can create inadvertent (and unwanted) conditions or obligations in the contract.
3. Cover the details
The rights and obligations of each party should be written in a manner that leaves little room for interpretation. Be extensive in how you spell out these matters. Leave nothing out. Anything left out will be very difficult to enforce. If you do agree on an amendment, put in writing.
4. Write numbers in both words and numerals
While reviewing your draft contract, it is incredibly easy to make an error like dropping a zero or misplacing the decimal point. For example, you meant to write R 1 000,00 but ended up writing R 1 0000,0. When it comes to matters involving money or stock exchanged, it is easy to see how an error like this can be costly. By writing in words and also using numbers, e.g. 1000 (one thousand), you decrease the risk of making costly errors.
5. Set out circumstances that terminate the contract
Set out the circumstances under which each party may end the contract. On one hand, both parties might have met their objectives in the contract. On the other, one party might have violated a major provision of the contract. You want a mechanism in place to be able to end the contract for those respective circumstances. Decide what it looks like for the objectives of the contract to be met and how this will terminate the contract. And set out what violations to the contract will give rise to the right to cancel.
6. Include a dispute resolution clause
There is always the possibility of a disagreement after you sign the contract. If something goes wrong, it really helps if you have outlined how disputes should be handled. It is well worth putting in a mediation clause. We highly recommend it, as it is both time and cost effective. Another option is an arbitration clause. Keeping disputes out of the courts allows for a more efficient and economical solution.
If you enjoyed these tips for making good business contracts and require assistance on any related matter, please do not hesitate to contact us at [email protected]. If you want to find out more about mediation, we are passionate about this service, so please email us at the same address if need be.