Many people are aware that contracts are important to have in writing before entering into any trade or transaction. Many also know that these contracts should be well written and edited. However, only a few understand how important it is to have contracts in writing or why they need to be properly reviewed. Contracts exist to protect transactions and the parties that is why you should get legal advice. It makes a lot of sense that a means of protection should not have any flaws or the protection becomes pointless. This creates the crucial need for contract reviews. But a review is quite different from a legal review of contracts – and a legal review definitely goes beyond “a review done by a lawyer.” This article sheds more light on the legal review of contracts while discussing their importance to individual and corporate transactions.
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Specific Nature of Contracts
Whether you have had previous dealings with lawyers or not, you should know – or at least be able to guess – that all contracts are not written the same way. A landlord who is about to take on a new tenant in his building will use a significantly different type of written agreement from the one used by a Fortune 500 company that recently hired a new Project Manager and has prepared the terms of employment. Depending on the jurisdiction, some of these contracts have specific forms they must use and may be rendered invalid if they look different. Thankfully, a few contract review software products can discern between these agreements, but lawyers with the required expertise better operate even these software.
While the internet has afforded many people access to contract templates and samples for whatever agreement they need it for – and sometimes, these samples may be accurate – there is a high likelihood of misapplying the contents during actual drafting. Having a legal review of such a contract will reduce the chances of encountering future problems. It is more bearable to spend money on legal fees than unexpected litigation costs.
Legal Compliance
Reviewing contracts is not restricted to the period before the contract takes effect. It can be done at any point during the contract’s validity, as long as both parties agree to such review. Sometimes, a review is absolutely necessary due to specific changes in laws and regulations within such jurisdiction. Contracts between business organizations mostly fall under this category. This is due to the regular business regulation changes in most countries, which are necessary. Businesses, therefore, have no choice but to review active contracts and ensure that they comply with new and updated regulations.
For example, consider a two-year contract with an Auditing and Financial Reporting firm to audit and publish reports on the other party’s financial status twice each year. Such an agreement has most likely been entered into based on the existing requirement by regulatory agencies for companies to turn in their financial reports twice a year. Should such requirements change, both parties will have to review their contract and adjust the necessary terms. Such unexpected events are precisely why you should have a legal review of contracts periodically.
Change in Business Needs
Every single business must operate and strategize in line with the needs of its stakeholders. Otherwise, it has questionable existence. Any change in business needs is usually influenced by major changes in the needs of stakeholders, which happens quite a lot. Change in a company’s business needs is another reason why a contract may be reviewed after it becomes active. This type of review can be with any of the company’s contracting counterparts, including its employees. When a business needs change, it may need to review its contract with a part of its workforce, which would be responsible for carrying out the effects of the new change. Similarly, the company’s contract with its suppliers and consultants may also be subject to review, depending on the change experienced by the business. It is advised that when in such situations, a thorough legal review of these contracts should be conducted to identify the necessary parts to be altered, erased, or added.
Understanding Legal Responsibilities
When parties do not understand their responsibilities in a contract, the agreement is dead on arrival. As most contracts are often drafted by lawyers, they sometimes contain slightly complicated sentences that could not have been drafted any simpler. This may pose a problem of lack of understanding to the parties – or misunderstanding – with the exact responsibilities expected by the contract.
Going about reviewing such sentences and words needs to be as thoroughly and carefully done as possible, so you need to be sure that you are using the best contract review software. The use of contract review software could make the process more thorough and make the entire document faster to analyze (a list of these software products can be found on platforms like Loio). However, it is important to take a manual and professional look at the contract while getting a different set of eyes to review for a second or third time. The ultimate goal of the review here should be making the contractual terms more understandable to the parties, which is the first step to performing your contractual obligations.
Preparing for Change
On a concluding note, contract reviews are very necessary for preparing the parties for unexpected events. The previous points in this article have addressed the concept of change affecting contracts, from a change in business to a change in the law. Many changes occur in life as well, which may frustrate the performance of contractual obligations, either a nationwide economic crisis, an industry-specific phenomenon, or even a global pandemic. Professionals should take this into account when reviewing contracts. They should ask the relevant questions during the review. “What are the likely events that may affect the performance of the contractual obligations?” and “How best can they be catered for in the contract, through new contractual terms?” Answering these questions will help lawyers and their clients prepare as best as possible for these events. Since they are unexpected, it is practically impossible for them to be completely prepared against them.
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