Business contracts can be lengthy documents, making it tempting to skim through standard-looking clauses and sign quickly. The reality is that some of the most consequential terms in any commercial agreement are the ones that receive the least attention during the review process. Commercial lawyers consistently find that the clauses most likely to cause problems are the ones that seemed unremarkable at the time of signing. This article will highlight the contract clauses that deserve careful scrutiny before any business agreement is executed.

Limitation of Liability Clauses

A limitation of liability clause caps the amount one party can recover from the other in the event of a breach or loss, and the figure set out in that clause can be dramatically lower than the actual loss suffered. Many standard commercial contracts include these clauses as a matter of course, often limiting liability to the value of the contract itself regardless of the scale of the damage caused. For businesses entering agreements where a failure by the other party could result in significant financial harm, accepting a low liability cap without negotiation can leave them with no recourse. Commercial lawyers can assess whether the cap proposed is appropriate for the level of risk involved and negotiate a more balanced position before the contract is signed.

Termination and Exit Provisions

The circumstances under which a contract can be terminated and what happens when it is are details that most parties pay little attention to when a relationship is new and optimism is high. In practice, termination clauses determine how much notice is required to end the agreement, whether termination for convenience is permitted and what obligations survive after the relationship concludes. A contract that allows one party to exit without notice can leave the other party exposed with no transition period and no compensation. Commercial lawyers can review termination provisions to ensure they're balanced and that the business retains adequate protection if the other party chooses to walk away at an inconvenient time.

Dispute Resolution Clauses

When a dispute arises between contracting parties, the dispute resolution clause determines the process that must be followed before either party can take formal legal action. Some contracts require mandatory mediation or expert determination before litigation can commence, while others designate a specific jurisdiction or court for any proceedings. These provisions can have a significant impact on how accessible and affordable resolution actually is, particularly if the clause requires proceedings to be conducted in a state or jurisdiction that's inconvenient for one party. Commercial lawyers can review dispute resolution clauses and flag any provisions that may create an imbalance or limit your ability to pursue a legitimate claim effectively.

Final Thoughts

The clauses that carry the most risk in a business contract are often the ones that look the most routine. Limitation of liability provisions, termination rights and dispute resolution processes all have real-world consequences that become apparent only when something goes wrong. Engaging commercial lawyers to review contracts before they're signed is the most reliable way to identify where these provisions are unfair or inadequate.

• Next