Red Flags to Look Out For in a Contract

It is impossible to do business today without having to deal with contracts. Many people just skim contracts because these documents usually contain far too much legal mumbo-jumbo, but not reading and understanding a contract could cost you.

If you do not read a contract carefully, you might not notice terms that are unfair or inaccurate. A Miami, Florida commercial law attorney can review your contracts and help you negotiate more favorable arrangements. Here are some red flags to look out for in a contract:

Cut and Paste

If you find that some of the terms like the parties, their roles, dates, and other essential items are not accurate, the drafter of the contract might have simply copied and pasted from another contract. If you see any such irregularities, you will want to cross-check every word of the proposed contract. There could be errors like terms from some other, unrelated agreement that could create a nightmare situation for you.

Non-Compete Clauses

An agreement not to compete is a standard provision in many contracts today, including employment contracts between the employer and its worker, partnership agreements, and standard contracts with clients. Over recent decades, noncompete clauses have fallen into disfavor with the courts and legislatures because many of the people who wrote these contract terms got greedy.

When a non-compete agreement is overly restrictive and oppressive, a court might refuse to enforce it at all. For example, not allowing an employee like a hairdresser ever to work at another salon within a 200-mile radius of the employer’s place of business makes it impossible for that worker to leave their current job and still make a living. Also, having unnecessary non-compete agreements in contracts with other companies could damage future business relations with them. 

What Happens When Things Go Wrong

People often enter into contractual arrangements with the best of intentions, only to set that work aside when a better offer comes along. Your contract should specify the date of performance for each party and the penalties for delays or incomplete work. If there is no financial incentive to do the work on time or in a reasonable amount of time, some people might never complete the job.

Another issue your contract should cover is who is liable if one of the parties gets sued by a third party for negligence or another reason. Many contracts contain liability and indemnity clauses. You do not want to get stuck with having to indemnify someone else if you did nothing wrong. Liability clauses specify who is responsible. Indemnity clauses state who has to reimburse another party if they get sued. Sometimes, indemnity clauses also require you to pay the legal fees of another party.

Automatic Renewals

One popular term that often catches people by surprise in contracts is an automatic renewal clause. Let’s say that you enter into a three-year contract with a supplier. Under the terms of the contract, if you do not give notice by a certain date, the contract will automatically renew for another three years. If you want to sell the business, you might have to buy out the automatic renewal clause. That could be expensive.

These are just a few examples of red flags you should look for in a business contract. A suggested best practice is to have a Miami, Florida business attorney review all contracts before you sign them and draft your contracts. Contact our office today for a free consultation.