Five commercial contract clauses that deserve closer scrutiny
A plain-language guide to contractual provisions that can materially change payment, liability and exit risk.
A contract can look commercially straightforward while allocating risk in ways that only become clear when something goes wrong. Five areas deserve particular attention before signature.
1. Payment
Payment terms should identify when an amount becomes due, any conditions that must first be satisfied, how disputes are handled and the consequences of late payment.
2. Liability
Liability clauses can determine whether exposure is capped, which losses are recoverable and whether particular risks are excluded from the cap. The wording should reflect the economics of the transaction rather than relying on generic drafting.
3. Warranties and indemnities
These provisions allocate specific risks between the parties. Their scope, duration and relationship with the general liability regime should be reviewed carefully.
4. Termination
The contract should make clear when a party can terminate, whether notice or a cure period is required and what obligations survive termination. A right to exit can be commercially important when a long-term relationship stops working.
5. Dispute resolution
The dispute clause determines where and how disagreements will be resolved. Governing law, courts, arbitration, mediation and escalation mechanisms should be chosen deliberately.
Commercial contracts work best when the legal drafting reflects how the parties actually expect the relationship to operate. Reviewing these clauses before signature is generally less expensive than discovering their consequences after a dispute has arisen.
Legal notice: This article provides general information only and does not constitute legal advice. Obtain advice for your specific circumstances.