When drafting a contract, there are various legal considerations that need to be carefully considered. It can be a daunting task, which is why most people will seek a contract lawyer’s assistance when drafting a contract. Nevertheless, this step-by-step guide will give you some valuable insight into what makes a legally effective contract.
What is a contract?
A contract is typically a legally binding agreement between two or more parties that details the obligations of each party. These obligations might require the parties to do certain things, or may prevent the parties from doing certain things. Contracts can also vary in complexity. A simple contract might be formed when you buy milk from the general store, whereas a more complex contract might be needed for a company takeover.
- Contractual Duties vs Contractual Rights
First of all, you need to determine what your rights and obligations will be if you enter into an agreement with another party. What will the other party’s rights and obligations be? If the terms of the agreement are not clearly set out, or there is some doubt or confusion as to the meaning of certain terms, the contract mightn’t be enforceable.
One particular area when drafting a contract that can prove troublesome is the termination provision. It should be easily discernible under what circumstances the contract may be terminated. Normally, a good contract contains a termination procedure that should be followed to achieve termination of the contract. Without following the designated procedure, the opposing party may bring a claim of wrongful termination against you, which could result in you having to pay damages for any loss incurred due to this wrongful termination. When drafting a contract, you should understand both the contractual duties and contractual rights of each party, as this is essential to knowing when a breach has occurred, and whether any remedies are available.
- Verbal Agreement vs Written Contract
When drafting a contract, we advise that you put everything in writing. Even though verbal agreements may still be enforceable, you can eliminate any doubt by putting all of your important agreements in writing. It will be much easier to understand the terms and conditions of a contract if they are written down.
Let’s say you discuss with a cleaner that she will be paid $200 a week to clean your house twice a week. Is GST included on top of that? Will you have to pay for the cleaning products? Will the cleaning include doing the laundry? These are important considerations when drafting a contract, and can only be clarified if the terms of the contract are put in writing.
To avoid the awkward and uncomfortable situation of one party denying that a term was ever part of the agreement, formalise the contract in writing. Instead of trying to prove that a term was agreed between you and the other party, save yourself the trouble by drafting the contract terms.
- One complete document
Ideally, when drafting a contract it is better to have the terms of the agreement in the same document. A haphazard approach to negotiating terms makes it more difficult to reconcile the completed contract and is more likely to result in confusion. This is sometimes the case when parties attempt to negotiate terms by sending each other emails back and forth. Instead, once the terms have been finalised, whether by email or otherwise, they should be compiled into one complete document that confirms the agreement in its entirety. Otherwise the parties could enter and sign a formal deed.
LegalVision has represented many clients looking to recover lost monies from contractual agreements that have fallen through. To avoid the all-too-common pitfalls of drafting a contract, follow this step-by-step guide on how to draft a contract. For further assistance on drafting a contract that is more complex, contact LegalVision on 1300 544 755 and speak with one of our team of contract Lawyers.