What to consider before signing a any agreement
Introduction
Agreements have long been a source of disputes. Whether we like to admit it or not, disputes often arise from misunderstandings, misconceptions, or a lack of clarity regarding the terms and obligations agreed upon by the parties at the time of signing.
This article aims to highlight the top five things that should be considered before signing any agreement as well as the top five common mistakes that should be avoided before entering into a contractual agreement.
Top 5 things to consider before signing any Agreement.
1. Let Your Lawyer Review the Agreement Before Signing
You have probably heard this advice many times, but why is it so important?
Most agreements are drafted by lawyers on behalf of one of the parties. Naturally, the agreement is intended to protect that party’s interests and may contain provisions that favor them, even where this is not immediately apparent to someone without legal training.
Having your own lawyer review the agreement can help identify unfair or one-sided provisions, ambiguous clauses, hidden obligations, unfavorable terms, and other potential risks before you sign.
2. Check What Happens When Things Go Wrong
Unforeseeable circumstances can arise at any time while performing contractual obligations. Before signing an agreement, you should understand what happens if you are unable to perform your obligations, if the other party fails to perform theirs, or if circumstances beyond either party’s control affect the agreement.
Pay particular attention to provisions dealing with breach of contract, penalties, termination, force majeure, liability, and dispute resolution. You should know both what you are required to do and what consequences you may face if something goes wrong.
3. Never Sign an Agreement Referring to Documents You Have Not Seen
Never sign an agreement that incorporates an annex, schedule, policy, terms and conditions, or other document that you have not actually been given the opportunity to read.
Some agreements contain clauses stating that, by signing the agreement, you acknowledge that you have read and accepted its annexes or referenced documents. This can create a serious problem if you have never seen those documents in the first place.
Before signing, make sure that every document incorporated into the agreement has been provided to you, reviewed, and understood. You should also make sure that you are actually capable of complying with the obligations imposed by those documents.
4. Make Sure Verbal Agreements Are Reflected in Writing
One of the most common mistakes people make is relying on something that was agreed upon verbally without ensuring that it is included in the written agreement.
Once the parties sign a written agreement, its terms will generally be the primary reference for determining their contractual rights and obligations. Depending on the applicable law and circumstances, proving the existence or content of a separate verbal agreement can also be difficult.
If something was important enough for you to agree to verbally, it should be clearly reflected in the written agreement. If it is missing, raise the issue and renegotiate before signing.
5. Make Sure Everyone Has the Legal Capacity and Authority to Sign
Before entering into an agreement, make sure that both you and the other party have the legal capacity and authority to enter into it.
This is particularly important when someone is signing on behalf of another person or a company. For example, if you are representing a company or acting on behalf of another person, you should ensure that you have the necessary authority, power of attorney, corporate authorization, or other legal basis to bind them to the agreement.
Likewise, you should verify that the person signing on behalf of the other party is properly authorized to do so. An agreement signed by someone without the necessary authority can create significant legal complications.
Top 5 mistakes that should be avoided before signing any Agreement.
- Not Reading the Entire Agreement
One of the most common mistakes people make is skimming an agreement or skipping certain clauses and paragraphs, assuming that they are merely formalities or are not particularly important.
This can be a serious mistake. Provisions that appear to be routine or insignificant may contain important obligations, limitations of liability, penalties, termination conditions, or other terms that can have significant consequences if something goes wrong.
Read the entire agreement, not just the parts that seem important.
2. Ignoring the Dispute Resolution Clause
Many agreements contain provisions that determine how and where disputes will be resolved. These may include the applicable jurisdiction, governing law, and whether disputes must be resolved through negotiation, mediation, litigation, or arbitration.
The choice of dispute resolution mechanism can have a significant impact on the cost, duration, location, and complexity of any future dispute.
Ignoring these provisions before signing can leave you committed to a dispute resolution process that is costly, inconvenient, or otherwise unfavorable to you.
3. Accepting Vague or Ambiguous Wording
One of the most dangerous aspects of a poorly drafted agreement is ambiguity.
Unclear wording can create disputes over the meaning of contractual terms, the scope of each party’s obligations, what constitutes a breach, and what consequences follow from that breach.
If an obligation, deadline, payment term, condition, or contractual right is unclear, do not simply assume that its meaning will be obvious later.
If a clause is important, its wording should be clear before you sign.
4. Overlooking Automatic Renewal Clauses
Some agreements contain automatic renewal clauses, meaning that the agreement will renew for another period unless one or both parties provide notice of their intention not to renew within a specified timeframe.
These clauses can become particularly problematic if you intend to leave the contractual relationship but miss the deadline for providing the required notice.
Before signing, check whether the agreement automatically renews, how long each renewal period lasts, and how and when notice of non-renewal must be given.
5. Assuming That All Obligations End When the Agreement Ends
The termination or expiry of an agreement does not necessarily mean that all contractual obligations immediately come to an end.
Depending on the agreement, certain provisions may continue to apply after termination. These can include confidentiality and non-disclosure obligations, non-compete provisions, intellectual property obligations, indemnities, payment obligations, dispute resolution provisions, and other clauses that are expressly intended to survive termination.
Therefore, do not assume that you have no further obligations simply because the agreement has ended.
Before considering the contractual relationship fully concluded, check which obligations survive termination or expiry.
Conclusion
Signing an agreement should never be treated as a mere formality. Whether it is a business contract, employment agreement, lease, partnership agreement, or any other legal document, signing creates rights and obligations that can have significant consequences.
The most effective way to avoid future disputes is to address potential problems before the agreement is signed. Read the entire agreement carefully, understand your obligations, clarify any ambiguous provisions, review what happens if circumstances change, and make sure that everything you have agreed upon is properly reflected in writing.
Most importantly, do not hesitate to seek legal advice when you are uncertain about an agreement. A few minutes spent understanding your rights and obligations before signing can save you significant time, expense, and legal complications later.
An agreement should not only tell you what you are agreeing to, it should make clear what you are agreeing to, what happens if things go wrong, and what your rights are when they do.