Seven clauses worth reading twice in any commercial contract
You will not read every word of every agreement. If you only have twenty minutes, these are the clauses where the money sits.
Sample article 4 min read
Business owners are sent contracts constantly and cannot take advice on all of them. Here is a practical triage: the clauses that most often decide what a contract is really worth.
1. Payment
Not just the price, the mechanics. When does the invoice trigger? How many days to pay? Is there interest on late payment? Can the other side withhold or set off? A good price on 90-day terms with a broad set-off right can be worse than a lower price paid promptly.
2. Term and termination
How long does this run, and how do you get out? Watch for automatic renewal, which catches people every year. Check whether termination for convenience is available to both sides or only one, and what notice is required.
3. Limitation of liability
This sets the real financial exposure. A cap of "fees paid in the preceding three months" and one of "fees paid over the life of the agreement" are very different numbers. Check whether the cap is mutual, and note what sits outside it. Read the exclusion of indirect and consequential loss carefully: for many businesses, lost profit is the loss that would actually hurt.
4. Indemnities
An indemnity is a promise to cover someone else's loss, and it typically sits outside ordinary damages principles. Giving a broad, uncapped indemnity is one of the fastest ways to accept risk far larger than the contract's value. Read what triggers it, and whether it is capped.
5. Intellectual property
Who owns what is created under the agreement? If you are paying for work, do you own the output or merely hold a licence? If you are supplying, are you accidentally assigning tools and methods you use across your whole client base? This clause is regularly wrong in both directions.
6. Confidentiality and data
What can each side do with the other's information, and for how long? If personal data is shared or processed, there should be provisions covering responsibility, expected security, and what happens on termination.
7. Governing law and disputes
Which law applies, and where do disputes go? An arbitration clause naming a foreign seat may look neutral and turn out to be prohibitively expensive for a modest claim. Worth attention precisely because you hope never to use it.
Two habits worth adopting
Read the definitions: contracts are often drafted so the commercially important limits live in a defined term rather than the clause you are reading. And check the annexures. A short agreement that incorporates a long standard policy by reference is a long agreement.
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