Tool Up: Create a Contract
A contract is a legally binding agreement between two or more people or businesses. It’s best to keep things as simple as possible so that everyone is completely clear on what they have agreed to and what their responsibilities and obligations are. If you don’t fully understand what you’re agreeing to get legal advice first.
Dealing with contracts. This is part of running a small business and it’s probable that you will have several to manage. They can be verbal, written or a combination of both. It’s best to put the details in writing otherwise it could come down to an argument about who said what if there were a future dispute. If you draft the first version of the contract following on from your negotiations, you will be on the front foot and sure that everything agreed is included. There are various organisations offering contract templates you can use. Use any search engine to come up with suitable options. Many will be free.
Making it watertight. Regardless of whether the contract is verbal or written, it has to include:
- an offer
- an acceptance
- an intention to create a legal relationship
- a consideration (usually monetary).
These are the elements that make your agreement legally binding but, it could still be invalid if it:
- is illegal or entices someone to commit a crime
- is entered into by someone who lacks capacity, such as a minor or bankrupt
- was agreed through misleading or deceptive conduct, duress, unconscionable conduct or undue influence.
A ‘standard form’ contract is a pre-prepared contract where most of the terms are set in advance with little or no negotiation between the parties. These contracts are usually printed with only a few blank spaces for adding names, signatures, dates, etc.
These are usually to the benefit of the person offering the work, but they must be fair. You have the right to negotiate but in some cases these will be presented to you as a ‘take it, or leave it’ offer. If it won’t be to your benefit you should be prepared to walk away.
Signing Up. Signing a contract is the point of no return so it’s worth giving everything a final thorough check over:
- read it carefully including the fine print
- make sure all the terms and conditions that were negotiated are included and accurate
- allow plenty of time to think it over and don’t be pressured into signing if there’s anything you don’t understand, aren’t sure about or seems unfair
- never leave blank spaces on a signed contract – cross them out if you have nothing to add so they can’t be altered later
- make sure that you and the other party initial any changes to the contract
- get a copy of the signed contract for your records.
Ending a contract. Most contracts end once the work is complete, and payment has been made. However a contract can also end if:
- everyone agrees
- it can’t continue because there are unforeseen circumstances outside of people’s control
- the contract allows one person to terminate at any time by providing notice to the other person
- one party hasn’t stuck to an essential contract condition.
It’s best to take legal advice before terminating a contract before the end because if there has been a minor breach, you may not be justified in tearing the whole thing up, and the other party could ask for compensation or damages.
If there’s a dispute regarding the contract and you can’t resolve it there may be a mediation or arbitration service that can help. Taking court action should be a very last resort and may not ultimately get you a good outcome. There’s more on contracts here.