Do you want well with customers, suppliers and other business partners? Thenuse well thought out contracts. Because these strengthen the partnership relationship with your business partners and help in the prevention of disputes.
The biggest mistake you can make is to sign a standard contract without thinking about its contents. A well thought-out and well-worded contract, on the other hand, strengthens the business relationship that you can orient yourself to anytime. And it also takes into account the specifics of each relationship between your business and your partners.
What is wrong with many contracts
A contract is made if anything in the relationship “goes awry.” However, this is also regularly the moment in which the parties realize that certain details are not regulated in the contract.
The lack of these details makes everything but uncertain. People see, hear and understand things differently; everyone has different ideas about certain concepts and expressions. In my experience, more than two thirds of closed contracts have “incomplete” regulations.
Such a poorly designed contract then leads to discussions and, in the end, to arguments about what has been agreed.
Set up contract: standard patterns are not a solution
Contracts used by startups are often based on standards or patterns – whether on contract patterns from the Internet, either because someone else has given the contract as a template.
The benefit of such a contract, however, which does not take into account the peculiarities of the individual case, is more than questionable: a contract should just settle a particular case!
In the (best) case, such a standard contract is just not enforceable (it’s questionable if that’s really the “best” case), in the (worst) case it’s just completely useless.
With these tips for better contracts
Should you consult a lawyer immediately if you want to make a good contract? Of course, in my opinion this is always an option (what else should I say as a lawyer).
However, there are a number of points that, if observed, immediately make a contract better. And you do not have to be a lawyer or need a lawyer. Below I give you ten tips that you should pay attention to in contracts.
1. Note the history
Each contract has a history, that is, a background to the origins and intentions of the parties in the business relationship. If you write them down, then you can fall back on this history in the event of a dispute and interpret regulations that are contained in the contract, with reference to the prehistory or interpret.
A good place to present the history is the so-called “preamble” at the beginning of the text of the treaty. Here the history does not necessarily have to be fully represented. You can only concentrate on individual important aspects.
2. Use clear language
Contracting parties no longer know after some time what was intended or meant by a provision in a contract. Then it depends on what was written down in the contract – therefore, the wording is authoritative.
A clear language helps to avoid misunderstandings, which is why the language must be precise and the sentence structure must be clear. Colloquial language should be avoided, certain terms should be explained.
In case of doubt, an uninvolved third party must know without asking what is meant by a particular regulation. And finally, care must be taken to ensure that there are no contradictions between individual regulations.
3. Define performance and consideration
You should always keep in mind that in case of doubt, a third party who does not know the contracting parties (for example, a judge or mediator) must understand the details of the contract. It should be clear what each party is supposed to do under the contract, ie what it must “do” under the contract.
Therefore, the performance of the parties must be precisely described in such a way that they result entirely from the contract itself. It should be noted that each party benefits are regularly assigned, even if they may not be recognizable at first glance. These include, for example, activities, payments, acts of cooperation or the like.
And you should not forget that depending on the type of contract and the law provides benefits that are not always needed. These are to be excluded, if that is possible.
4. Consider subsequent changes to circumstances
Circumstances that are important to the parties to a contract may change. These may be external circumstances or new insights that are significant to the parties.
Sometimes there is a need for change during contract execution. And sometimes certain aspects are simply not considered by the parties and are not noticed until later.
Contracts must take this into account, be it through clauses to amend regulations, be it – if nothing else at all goes – by the possibility of an early termination by one or all parties.
5. Set beginning and end
Particularly in the case of long-term contracts, it must be specified in the contract when exactly the term of the contract starts and ends, in particular if subsequent changes to the contract arise. Start of the term may be with contract signing, with the occurrence of a specific event or at a specific time.
Likewise, the consequences are to be considered regularly if the parties have already taken action with a view to fulfilling the contract, but the contract itself has not yet begun. And for the end of the contract period, for example, the description of an event may be required, or simply the achievement of a certain time.
It is important in any case that the parties see from the contract when the contract ends.
Incidentally, just because the contract ends does not mean that then the performance of the service (s) ends.
6. Consider options for solving the contract
Sometimes it is necessary to break away from a contract. Then everyone should be aware of the possibilities. For example, a termination and the necessary circumstances and conditions or a resignation may be considered.
In any case, it is important that the relevant deadlines and the consequences of waiting for the regulated deadlines are clear to the parties. In addition, you should consider in advance, which consequences arise through the release, for example, if a party has performed services.
7. Determine the contact person
To be a contact person does not just mean that this process is discussed or difficulties are discussed. It may also mean that the contact person is representative of the contracting party when statements are made or notifications are made.
In this context, it is also important to consider what needs to be done when a contact once has been removed or when responsibilities change within a company.
8. Settle costs
Important for each contractor is the question of what costs he has to bear in relation to the contract. In doing so, you should think about the costs of creating a contract as well as its examination and modification, for example by switching on a lawyer.
However, costs for third parties such as a notary or a state register must also be taken into account, especially if there is a foreign relationship and the cost structures there are different from those in Germany.
After all, costs for monitoring the execution of the contract should not be neglected either.
9. Provide for the case of a dispute
There are three things you need to keep in mind in the event of a dispute: where a dispute is decided, an ordinary court or arbitration tribunal (or a mediation proceeding) is dealt with and what right applies to the contract.
The latter is particularly important if the parties come from different countries or the points of contact for the provision of the service are in different countries.
Finally, one should remember to clarify which linguistic version has priority in bilingual contracts.
10. Own opinion in contract interpretation secondary
It should never be forgotten: one’s own opinion is secondary to the question of how to understand and interpret a contract.
The person who has to decide on a dispute regularly reads a contract without any prior knowledge of the parties and as neutrally as possible.
If certain views are crucial, or if certain rules or definitions apply, they must be recognizable to a third party from the contract.
If you have to ask one of them for the first time, then difficulties are inevitable if the other party has a different opinion and there are no indications of a particular view from the contract.
You do not have to be a lawyer to make contracts “better”. Often enough, careful reading of the text of the contract, the precise presentation in the contract of what the parties want to settle and the fulfillment of the above ten points are sufficient.
You can easily avoid many typical mistakes. And that’s an excellent start.
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