If you’re in business then you’ll need to enter into legal contracts on a regular basis. Unfortunately many business people don’t take basic precautions before signing a contract. We’ve therefore put together a checklist of steps to take before you sign a contract. Some of these steps are obvious, some less so, but the reality is that most business owners don’t follow them when entering in to legal contracts.

1. Read it!

This is the most obvious step, but unfortunately too many business owners gloss over the “boring bits” of the contract, and thus miss out on noticing one or more crucial details. You need to read every contract you enter into from start to finish. No excuses. We’ve lost count of the number of times LegalVision customers have need to hire us to extricate themselves from contracts that they’ve entered into without reading them.

2. Be Careful with Representations and Warranties

Many contracts include representations and warranties that one of the parties makes to the other. It’s important you only make representations and warranties that are correct; if you make incorrect ones you’re automatically breaching the contract before you’ve even gotten underway. Many poorly drafted contracts have representations and warranties are clearly not correct, but that the parties sign anyway. Don’t make this mistake.

3. Make Sure You Can Comply with the Ongoing Terms

The next step is to make sure that you can actually comply with the ongoing terms of the contract. This includes payments, undertakings and the like. Actually have a good think about whether you can uphold your end of the bargain, not just now, but in the months and years to come. A legal contract is a serious document. You should enter into it only after working out whether you can actually comply with its terms.

4. Make Sure You’re Authorised To Sign

If you’re signing the document on behalf of a company, you need to make sure if you’re actually authorised to sign the contract. Generally the directors of a company will be authorised to sign, but if the company has more than one director there may be requirement in the constitutional documents that two directors sign. If you’re not a director of the company it’s likely that you will need to be authorised by a company power of attorney to sign documents on behalf of the company. If you sign a contract, and are not authorised to, then the contract will not be valid. This is a common mistake; make sure you don’t make it!

5. Consider Having a Lawyer Review the Document

Finally, it’s definitely worth considering having a lawyer review any important legal contracts. A good commercial lawyer should be able to complete a review for a very reasonable fixed fee. This will not only mean you’ve got the peace of mind of having had a lawyer complete a review, but you’ll also get the benefit of the lawyer’s PI insurance if there is a problem down the track.

Conclusion

Make sure you take these 5 simple steps before signing a contract. You’ll save yourself a lot of money and trouble in the long run. Get in touch with one of our contract lawyers to have it reviewed first.

Lachlan McKnight

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