Key Takeaways

  • Common contract clauses include provisions related to timing, performance, interpretation, rights, and remedies.
  • Additional clauses such as boilerplate, payment terms, warranty disclaimers, and survival clauses are critical in clarifying expectations and limiting liability.
  • Risk management clauses such as insurance requirements and limitation of liability help allocate financial responsibility.
  • Escalation clauses, change of control clauses, and dispute resolution clauses shape how conflicts are handled and what happens if business ownership shifts.
  • Understanding and clearly drafting these clauses reduces ambiguity and strengthens enforceability.

Types of Contract Clauses

There are many different types of contract clauses.

Timing

A statute of limitations clause defines the time frame, applied by law or agreed to by the parties, within which a claim must be filed to be valid.

A time limitation clause, like a statute of limitations clause, sets the time frame within which a claim must be made if a specific action or event occurs.

A time of performance clause designates the time frame within which performance must occur. If performance does not occur within that time then the non-performing party has breached the contract. If no specific time is designated, performance must occur within a reasonable amount of time.

Payment and Escalation Clauses

Payment terms clauses are among the most common contract clauses and define how and when payments are to be made. These clauses typically address due dates, acceptable payment methods, late fees, and penalties for non-payment. They can also include discounts for early payment or structured installment arrangements.

Escalation clauses (often found in long-term service or supply contracts) allow for periodic price increases based on specific factors such as inflation, labor costs, or material prices. These clauses help protect suppliers from cost volatility over time.

Performance

Along with the time of performance clause, a force majeure clause applies to performance. A force majeure clause outlines what happens if a party is unable to fulfill their part of the contract because of an unforeseen circumstance, or “acts of God.” These events, such as natural disasters, are beyond the parties’ control.

Warranty and Disclaimers

A warranty clause outlines the guarantees one party makes regarding the quality or condition of goods or services provided. This can include express warranties (clearly stated) or implied warranties (automatically presumed by law unless disclaimed).

A disclaimer of warranties clause attempts to limit or eliminate those guarantees. For example, a software provider may disclaim warranties of merchantability or fitness for a particular purpose. These disclaimers must comply with the Uniform Commercial Code (UCC) or other applicable law to be enforceable.

Contract Interpretation

A forum, or choice of law, clause designates the jurisdiction, usually a specific state’s laws, under which a contract’s terms will be interpreted in the event of a dispute. Parties can also include a specific jurisdiction in which litigation must occur. This type of clause must comply with other requirements of contract law.

A merger clause declares that the written contract is the final and complete agreement between the parties. This clause overrides and/or consolidates all prior oral or written agreements into the final written document.

Other names for a merger clause:

  1. Entire agreement clause
  2. Whole agreement clause
  3. Integration clause

A severability clause, or savings clause, provides that even if one or more provisions of the agreement are declared unenforceable the whole/remainder of the contract is still enforceable. The unenforceable provisions will be removed from the contract. Without a severability clause, it is possible that a court will invalidate the entire contract even if only one provision is found to be invalid.

A termination clause delineates the circumstances under which the contract may be terminated.

Boilerplate and Survival Clauses

Boilerplate clauses are standard provisions typically included at the end of contracts. Although they are often overlooked, they can significantly affect the rights and responsibilities of the parties. Common boilerplate provisions include:

  • Notices clause – specifies how formal communications must be delivered.
  • Amendment clause – outlines the requirements for modifying the contract.
  • Counterparts clause – allows the contract to be executed in multiple copies.
  • No third-party beneficiaries clause – clarifies that only the contracting parties have rights under the agreement.

A survival clause specifies which provisions of the contract will remain in effect after termination or expiration. Commonly surviving clauses include confidentiality, indemnification, and dispute resolution provisions.

Contract Rights

An assignment clause transfers all, or particular, rights from the assignor to the assignee. It assigns the assignee with any obligations connected to the right(s).

A confidentiality clause, or nondisclosure clause, guarantees that particular information if a private commercial secret and therefore guarantees that it will not be disclosed without permission. This clause can also guarantee the opposite: allowing particular data to be distributed to whomever the party would like. You can also meet in the middle and specify particular individuals or companies that the information can be given to.

A consideration clause lays out what a party must do, or not do, in order to enter into an agreement. This action or inaction is called consideration. Consideration is usually payment. Without consideration, there is no contract.

Change of Control and Insurance Clauses

A change of control clause outlines what happens if a party undergoes a significant ownership change, such as a merger, acquisition, or sale. These clauses are especially important in vendor and partnership agreements, as they allow the non-affected party to terminate or renegotiate the contract in light of the new ownership structure.

An insurance clause requires one or both parties to maintain certain types of insurance coverage (e.g., general liability, professional liability, or cyber insurance). These clauses help manage risk and ensure that funds are available to cover potential claims arising from the contractual relationship.

Remedies/Damages

A liquidated damages clause designates the amount of money that the non-breaching party may collect from the breaching party as compensation for a specific breach. A liquidated damages clause must be reasonable or a court will not enforce it.

If a non-waiver clause is included in a contract, then the party who included it does not waive their full contract rights, even if they accept non-compliant performance from the other party. In a landlord-tenant situation, if the landlord accepts rent payments every other month for the first six months and does not file a claim, the non-waiver clause allows the landlord to recover the missing rent even though the landlord has accepted non-performance of contract terms for a long period of time.

An arbitration clause requires legal disputes to be resolved through an arbitration process.

An attorney’s fees clause requires the losing party to pay for the winning party’s attorney’s fees. Sometimes this clause will include other litigation costs as well.

An indemnification, or indemnity, clause states that one party promises to reimburse, pay for, the other party’s costs for specific types of damages, claims, or losses that may occur. If a manufacturer sells a client technology with an indemnity clause included in the contract and the client is then sued by a different company for copyright, the manufacturer has to cover the client’s costs of the lawsuit.

Limitation of Liability and Dispute Resolution Clauses

A limitation of liability clause caps the amount one party must pay in damages if they breach the contract. These clauses are often used to exclude certain types of damages (e.g., consequential or punitive damages) or to set a financial limit on liability.

A dispute resolution clause outlines how parties will resolve disagreements. In addition to arbitration clauses, contracts may specify mediation as a first step, followed by arbitration or litigation if unresolved. Some contracts also require escalation through internal channels before engaging in formal proceedings.

Frequently Asked Questions

1. What are the most common contract clauses?

Common clauses include indemnity, confidentiality, payment terms, termination, dispute resolution, and limitation of liability.

2. Why is a severability clause important?

It ensures the rest of the contract remains enforceable even if one part is found invalid.

3. What is a force majeure clause?

It excuses a party from fulfilling contractual obligations due to uncontrollable events like natural disasters or pandemics.

4. How does an assignment clause work?

It allows one party to transfer their rights and obligations to another party, subject to any restrictions outlined in the contract.

5. What happens if there is no dispute resolution clause in a contract?

Without one, parties must rely on default court procedures, which can be more time-consuming and expensive than alternative methods like arbitration.

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