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Drafting a contract is an important aspect of any agreement, as contracts allow an agreement to be legally binding. This means that if someone were to breach your contract, you would have legal remedies available such as damages. However, it is crucial to avoid mistakes when drafting contracts. This is because the person who breached the contract may get out of paying compensation if a party has poorly drafted the contract or the wording is ambiguous. This article will outline the mistakes to avoid when drafting a contract in New Zealand.

1. Not Putting Your Contract in Writing

One of the most common mistakes to avoid when entering contracts is not putting them in writing. Even though contracts can be legally enforceable when formed orally, it is always best to have a written contract agreement. This is because it is clear what the contract contains when parties write it down. Oral contracts are contentious as it is one party’s word against the other. When parties write down a contract, it is clear to both parties what their rights and obligations are and what happens if there is a dispute. It is also good to have an independent witness who can testify that both parties have signed the agreement.

2. Not Including a Termination Clause

It is important to include a termination clause in your contract. A termination clause is a provision that allows either party to cancel the agreement in certain circumstances. Those circumstances are usually a breach of contract or a situation where one party needs to cancel the agreement. For example, if you are being supplied with ingredients for your cafe and don’t need those ingredients anymore, you may be able to terminate the agreement under a certain provision. If you do not include a termination clause, you may be bound to your agreement until the original ending date you agreed to. However, if you include a termination clause, you must be aware that either party to the contract can activate it if the requirements are met.

3. Copying Someone Else’s Contract

It can be tempting to copy a similar contract that you find on the internet or somewhere else. However, you should always draft your own contract. This is because other contracts will not account for everything that you need. The contract that you copy may contain terms that are:

  • not for your jurisdiction;
  • not applicable to your business; or
  • out of date.

This can lead to legal issues down the line. The contract must be clear and unambiguous for them to be legally enforceable. Any irrelevant or wrong terms could stop you from getting compensation if your contracting party breaches the contract. You can also run into legal issues if you copy someone else’s contract. These contracts may be protected or copyrighted, so it is always best to draft up your own contract.

4. Not Having a Clear Dispute Procedure

You will likely have disputes with your contracting party. Therefore, another of the most common mistakes to avoid when drafting contracts is not having a dispute procedure. The main thing is to make sure these disputes do not turn into a lengthy court battle. If they do, you could be subject to years of procedure and could be spending thousands of dollars. The best way to avoid this is to have a clear understanding when a dispute arises. The best way to do this is to have a dispute resolution process. There are two main ways to do this.

Negotiation

A discussion with your contracting party that is aimed at resolving a dispute. Each party comes to the table with one they want, and they compromise to find a middle ground.

Mediation

Similar to negotiation but with an independent mediator. This person can steer the conversation in the right direction and convince either party to make concessions.

Usually, parties will try negotiation first, and if this fails, they can action mediation. These methods are a low cost and easy way to solve a dispute without going to court. 

Key Takeaways

Ensuring that you have a well-drafted contract is vital to ensuring that you are protected in any agreement that you enter into. This is because it gives you options if your contracting party breaks that agreement. However, if you do not draft the contracts well enough, you could lose these remedies. This is because contracts are only binding if they are unambiguous and either party intended to enter into the agreement. Some common mistakes when drafting contracts include:

  • not putting your contract in writing;
  • not including a termination clause;
  • copying someone else’s contract; and
  • not having a clear procedure for a dispute.

When drafting contracts, it is always important that you consult a lawyer. If you need any legal assistance with drafting contracts, contact LegalVision’s experienced lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

Are oral contracts still binding?

Yes, they are, but it’s harder to prove what the terms are if there is a dispute. A written contract prevents this from happening.

Can I exercise a termination clause at any time?

You can only exercise termination clauses if they meet the circumstances outlined in the contract.

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