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Most businesses in New Zealand will need to sign business contracts with other businesses, especially as they grow and expand their operations. You might be looking to sign a contract with a new:

However, these contracts sometimes cause issues for companies later on, particularly if you are not fully across the details of the contract once it is signed. This article will outline five key steps to take before you lock your company into a contract.

1. Check if the Right Parties Are Signing the Contract

Checking if the right parties are signing the contract is more complicated than it might appear at first. This frequently leads to issues down the line if you sign a contract with a different entity than who you thought was signing the contract. This typically is an issue when the other party has a lot of associated companies or entities.

Make sure the signatory (whoever is signing for the other party) is representing the company or entity that you want to be in a contractual relationship with. 

It can be difficult to fully execute the contract if the wrong business entity or wrong person has signed for the other party. Equally, make sure your details and contact information is correct on your end. This is important if you end up seeking to terminate the contract later on.

2. Double Check the Details

Most business contracts have nitty-gritty details of some kind or another. Particularly when these details include numbers, it can be easy to assume that the numbers are the right ones and skip to the signing section at the end.

Here, make sure to take a few extra minutes to make sure that the details are what you agreed.

For example, if your contract includes a price for something, check to see whether that price increases annually or through some other arrangement. 

It is very common for mistakes to be made when contracts are drafted, particularly when it comes to numbers. Here, it is much easier for all parties when these mistakes are recognised before the contract is signed. 

3. Know the Contract’s Time-Frame

The time-frame and how the contract might be terminated are key things to understand when you sign an agreement. Whether the contract is a short-term or a long-term arrangement is clearly key for your business strategy, but it is also important for other parts of the contract. 

For instance, if the contract ends in a few months, then you have the benefit of not being locked into a long legal relationship if there are any issues with the other parties. However, if it ends after a long period of time, it is especially important to have a robust disputes resolution clause

4. Check What Happens if a Dispute Happens

While it may seem unlikely when you sign a business contract, there is a non-trivial chance that an issue or serious disagreement will eventually crop up between your business and the other party. When that happens, you need to have clarity about how to resolve issues with them. 

A dispute resolution clause provides for the process for how to resolve these issues, and what happens if they cannot be resolved. Make sure you understand how the disputes resolution process in your contract works, and that you are comfortable with it.

5. Talk to a Lawyer

While you will know your business inside and out, it is strongly recommended that you have a lawyer to check over a commercial contract you are about to sign. This is especially important if the contract is a long-term or strategic agreement. It is likely they will be able to spot any issues in the contract’s drafting or highlight important details that are easy to miss. Given that the other party is likely to have their own lawyers looking over the contract, and may have drafted it themselves, you should make sure you minimise the risk on your end.

Key Takeaways

It may be an exciting time when signing a new commercial contract for your business. However, there are five key steps to take before you sign any contract. You should:

  • check that the right business or person is signing the contract for the other party;
  • double check the details and any numbers in the contract;
  • check the contract’s time-frame;
  • check the dispute resolution clause; and 
  • get a lawyer to check over the contract if you can, especially if it is an important or long-term contract for your business.

If you want to know more about negotiating business contracts, contact LegalVision’s contract lawyers on 0800 005 570, or complete the form on this page.

FAQs

How long are contracts binding for?

The contract itself should set out how long it will take effect for, and the time period of any obligations you and the other party owe each other. There is no standard period for contract length, so it depends on the circumstances. 

What happens when there is a dispute about how the contract operates?

The contract should have a dispute resolution clause that sets out what happens if a dispute eventuates between the parties. Usually, the clause will set out some form of mediation or arbitration to resolve issues that the parties cannot otherwise solve between themselves. 

What happens if there is a mistake in the contract’s drafting?

Before signing the contract, alert the other party to the error – there is a high chance that it was a genuine error. The contract should be adjusted accordingly before you sign. If the other party disputes that there is a mistake (ie, that there is a disagreement about the terms), that requires further discussion over what the term should be. It is good to spot this before you sign!

What happens if you have signed the agreement already, but there is a mistake?

You should immediately contact a lawyer. It is complicated to exit contracts or change them after you have already agreed and started the contract, so it is important to get professional legal help. 

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.

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