How to Review Contracts: Everything You Need to Know
When learning how to review contracts, there are many steps to the process that you will need to ensure are completed and some of them are listed below.3 min read
2. Making Sure You Client Can Get Out of the Contract
3. Renewal Terms
7. Collections Expenses
Updated July 1, 2020:
A Contract Review Checklist
Following a contract review checklist can ensure that everything is properly described and outlined leaving little room for interpretation. Some of the actions that should be included in your contract review checklist include:
- Identifying all parties properly
- Making sure all terms are defined
- Including necessary signature blocks
- Referencing any exhibits, schedules, etc. and making sure they are included
- Double checking all mathematical formulations
- Ensuring that the term expiration is explained
- Including instructions for early termination if applicable
- Identifying the rights of all parties in regards to the terms of the contract
- Checking that all of the performance obligations are accurate
- Verifying the accuracy of payment terms
- Clarifying any expenses that are reimbursable and how to go about it
- Verifying the accuracy of warranties and representations
- Checking for a well-drafted NDA provision
- Verifying the presence of a non-compete and non-solicitation
- Checking who will own intellectual property
- Verifying for indemnification
- Checking to see if insurance is required or should be
- Checking for boilerplate provisions
- Agreeing to governing law and legal jurisdiction
- Verifying provisions for attorney fees
Making Sure You Client Can Get Out of the Contract
It is important to plan for the event that a customer wants to get out of the contract and make sure there is appropriate language in their defining the terms and process for breaking the contract. Most often the only time a party will look at a contract after they have signed it is when they are looking to assign it to someone else or to get out of it.
It is also vital to review the renewal terms of the contract and do your best to watch for what is referred to as forever contracts. In forever contracts, renewals will occur automatically unless notice is given within a narrow time frame, usually a length of time before the contract expires. In the event the cancelation has not been received, the contract will be renewed for another period.
The benefit of these type of renewal terms is that if the business relationship is going well, then neither party will have to take action in order to renew the contract. Auto-renewals aren't always bad, but it is important to allow a customer to have a way out if they are not satisfied.
One of the essential areas to look at in a contract is the terms of termination. It is always important to make sure that a client can get out of a contract if they are displeased with the performance of it. You should always verify that your client is able to terminate in the event of a breach of contract as well as have a short cure period in which they have to wait to cancel the contract.
You will always want to make sure that the contract your client is signing allows assignment without the consent of the other signing party if the assignment is the result of a corporate reorganization. This can eliminate a significant amount of wasted time and resources.
If you notice that only one party is indemnifying, then it is best to have it removed from the contract unless it can be made to be mutual. Even if it is a situation where one party could never be the cause of liability, it is still vital to include mutual language.
You should make sure that the non-paying party listed in the contract is responsible for legal expenses and fees in terms of collections. By making this party responsible for the legal expenses they are more likely to pay to avoid going into collections actions.
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