The act of signing a contract can often feel like just a box to check. You read a few lines, sign below the line, and continue on your way. This is precisely why most individuals make critical mistakes.
Contracts are more than just pieces of paper; they are legally enforceable documents that govern rights, obligations and ramifications. Whether you are executing a business transaction, employment offer, real estate transaction, or a freelance project, the agreement you sign could be beneficial or detrimental to you in the future.
Unfortunately, many people often do not realize the impact of signing a contract until it’s too late. This is why it is always worth your time to know the basics of contracts and get help from a contract lawyer, prior to signing anything.
Below are the 10 most common legal mistakes people make when signing contracts and how to avoid them.
1. Not Reading the Entire Contract
The most common blunder individuals make is not reading through the entire document. They read through the major points — payment, duration, or deliverables and skip over the fine print.
However, that fine print is frequently where all the vital information is contained, such as:
- Penalties for early termination
- Conditions of renewal
- Hidden fees or limitations
Once you’ve signed, it’s very difficult to reverse your choice. Always read the entire contract. If something doesn’t make sense, find a contract lawyer in your area to explain it to you. They can help you understand what you are actually agreeing to and help identify writing that could create issues down the line.
As one expert said: “Most people think a contract protects them automatically – it only protects what it says.”
2. Overlooking Termination Clauses
Termination clauses describe how and when a contract can be canceled. Ignoring them can keep you in a deal longer than you anticipated. Some contracts require a 30-day written
notification before termination. If you fail to follow this process, you may not only lose your deposit but may also incur additional costs.
Reasonably, you should have the right to terminate or leave a contract without the specific consent of the other party. A business contract attorney can review the terms of the contract to help ensure fairness.
3. Ignoring Scope of Work
The “Scope of Work” provision indicates what exactly is being agreed upon and is often vague or incomplete. This section typically has the most disputes.
When a contract fails to provide clear information about timing, deliverables, or responsibilities, an assumption is made, and the two parties may assume different duties. For example, you may have assumed as part of the project there would be multiple revisions, while the contractor may have only agreed to a project with one revision.
Be very specific. The scope of work should include the specifics of what is typically expected, by the timing, and under what specific conditions. A contract attorney can assist with writing the language and removing any ambiguity.
4. Failure to Validate Accurate Names or Entities
People often sign contracts without validating the correct names or legal entities. One mistake in this department could make your contract legally unenforceable. Before you sign, validate:
- The full legal name of any parties
- Registration details (if applicable)
- The authority of the individual signing on behalf of a business or company.
These details may seem minor, but if a dispute occurs, it can cause complications. A contract attorney will validate these details so that you have a legally enforceable agreement.
5. Money Matters
Your first instinct may be to rush over to a payment provision. You may think “payment is due upon receipt” but the contract states “30 days after invoice approval.” This can cause a cashflow issue.
Read all provisions pertaining to money including how and when payments are made, what if someone is late to pay, and who pays tax or transaction fees.
If you are doing international payments, also confirm the currency to use and tax implications. If there are any concerns, a contract attorney can review to ensure you are adequately compensated.
6. Overlooking Confidentiality Clauses
Confidentiality agreements (or NDAs) can seem benign, but they may limit what you’re allowed to say or disclose. You may not even know you have committed to not talking publicly about your work after the project is over.
Before reviewing the NDA, be sure to fully understand what is considered confidential and for how long you have agreed to confidentiality.
A business contract attorney can ensure that the confidentiality agreement does not limit your opportunities or disproportionately benefit the other party.
7. Not Reviewing Dispute Resolution Terms
When the process is going well, no one (including the client) thinks about disputing. But if things go bad, suddenly this clause is very important. Some contracts state that if a dispute happens, the party’s only recourse (even after the project has started) is to participate in arbitration in another state or country (more expense, hassle, and uncertainty).
Before you sign anything, make sure to review how and where disputes will be resolved. Be sure to understand the consequences — when you are forced to participate in mediation, arbitration, or court (before you reach that step) — of the process and whether the agreement’s terms are reasonable.
A contract lawyer near you can help negotiate reasonable terms.
8. Using Free Templates Online
A lot of people use templates they find available online because the quantity is endless and the price is free, however, contracts do not work on one-size-fits-all assumptions. Just because a template can be downloaded for free does not mean that it will comply with the local laws or your own needs for your business.
The template may also lack important contractual clauses that your jurisdiction requires for the contract to become enforceable. Instead of using a free template, hire someone to draft or review the contracts in your business.
This way, you can ensure the document is legal, relevant to your situation and protects your business interests.
9. Renewal Clauses
Some contracts become automatically renewed at the end of the agreed term, unless notice is provided within a specified timeline. Many people miss that timeline, and then realize that they have convinced themselves to be on yet another term that they did not want.
Make sure to check to determine if your contract has an auto-renewal clause; if it does, you should be aware of the notice period to cancel any time the contract renews. This is a simple step that could save you a lot of nonsensical expenses if you cancel and frustration if you do not.
If the clause feels unfair, ask your contract attorney to change it immediately before you sign.
10. Not Getting Legal Help
This is the worst mistake of all – signing without any professional advice.
Contracts can often be lengthy, complicated, and stuffed with jargon. One ambiguous sentence in a key provision can lead to significant problems later.
A contract lawyer close to you is not only looking for loopholes; they are also protecting you from those loopholes. They will make sure that every part of the agreement is clear, that you are not taking on unnecessary risks, and that the contract is enforceable.
Final Thoughts
Contracts are not designed to intimidate — rather, they are designed to safeguard you. Protection only works if you understand what it is that you are agreeing to. So do not rush, read the whole document attentively, and ask questions. If anything is unclear, consult with a contract lawyer before signing.
If you are starting a business, renting a property, hiring someone, or entering into any agreement, talking with a business contract lawyer will prevent headaches, and confusion, and may save you money in the long run.
Good contracts create trust and understanding; rushed contracts create confusion and risk. Always choose the first.