Understanding contracts is often a matter of being completely clear on all terms and conditions, and making sure contract details are not subject to various meanings. The legal agreement between parties should be clearly laid out on paper. A second set of eyes — either an attorney, family member, colleague, or friend — may review the contract and share an opinion on it to help you better understand it. 

Tips for Understanding Contracts

Determine the scope of the contract. If you find it simple enough, you might handle the contract yourself. However, if the future of your company rests on the contract, hire an attorney to review it.

Most contracts contain common terms, so have a clear understanding of these terms, especially the ones that represent you. Many terms will be defined. For any terms that aren't defined, find out what they mean.

Taking Your Time

Spend some time going over the contract by yourself. Take your time and read over it. This isn't a time to rush. Request time to look over the contact without distractions. Don't allow another party to pressure you into signing anything until you've read it thoroughly.

When you're reading for comprehension, ignore legalese. An easy way to understand a contract is to underline keywords and tune out the complex legal words.

Take your draft copy of the contract and a red pen into a quiet space. Go through it line by line. Jot down any of the following: 

  • Comments
  • Questions 
  • Notes that need clarification

As you complete each section that you fully comprehend, you might want to initial it so that you know you've finished it. Other sections can be reviewed when you meet with the other party.

Read it several times. A contract is a legally binding document, and it's imperative that you fully understand it. Read over it more than once so that all terms are crystal clear to you.

Once you've gone over the contract and made your notes, arrange a meeting with the other party. Go over it section by section or line by line until you're both on the same page. It's within your rights to negotiate if you disagree on something.

You can negotiate until the contract is signed. It's possible to renegotiate after signing, but that will take more effort to change. Plus, the other party might not want to renegotiate.

More Considerations

Be reasonable, and do some research first to see what you can expect. You may have to talk to people in your field or seek out industry advice on what's fair. You don't want to ask for too much from the other party, but you don't have to agree with terms that you're not comfortable with, either.

Don't accept a verbal agreement. Verbal agreements are hard to prove and extremely difficult to enforce. You might make a verbal statement regarding the contract's scope or terms, but that should only be in the beginning stages of contract talks. Contracts must be in writing.

If you don't understand something, ask. This isn't the time to worry about looking silly or unintelligent. What matters most is that the terms are clear to you.

If you feel something needs to be changed or otherwise addressed, have the contract rewritten. If it's a minor change, you might just scratch through that part of the contract and initial it. For major changes, it's best to draft a brand new copy.

Never sign anything you don't fully understand. Sometimes, one party intentionally uses complex, confusing legalese to trick the other party into breach of contract. It's crucial to understand each and every item before signing a contract.

Recognize a bad contract when you see one. Don't simply give the other party the benefit of the doubt. If the contract isn't fair and equal to all parties, it's not a good one. 

Get a signed copy for yourself. Don't walk away without one.

You should never feel rushed into signing a contract. Fully understanding what you're signing can prevent a lot of headaches and legal hassles in the future, so take your time and ask as many questions as you need to before signing on that dotted line.

If you need help with contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.