Contracts, Small Law Firms

Tips For Reviewing A Contract

There are a few things every lawyer is expected to be able to do -- but every lawyer should be able to review a contract.

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Bad contractThere are a few things every lawyer is expected to be able to do. Answer questions from friends and family about overcharges on credit card statements. Know off the top of our head how many points go on someone’s driving record for certain infractions. Negotiate on behalf of distant family members who have wronged some party and now see you as their “get out of trouble free pass.” And review a contract.

The other stuff above I usually politely demur or give my thoughts but explain my thoughts on these matters are not worth much more than that of a non-lawyer. But every lawyer should be able to review a contract.

Sometimes a potential client will tell me she needs a lawyer to review an agreement, but she only wants someone who’s knowledgeable as to her specific industry, whether it be fashion or furniture or fascism or anti-fascism or whatever. Yet oftentimes the scope of work or other industry-specific provisions appear in an exhibit to the contract, for ease of updating and/or revising, and will mostly consist of business points rather than legal issues, and the standard contract terms will not be appreciably different from every other contract out there. I’m not saying the actual terms are all the same — far from it — but the basics remain the same, so no matter the subject, every attorney should be able to make a few constructive comments.

In that spirit, below is a guide for contract review that is widely applicable, no matter the subject.

Make sure your client can get out. This is most important. I’ve had clients — and I’ve done it myself — who over time have adjusted payment and other provisions without once going back and looking at the original contract. But once someone is trying to get out of a contract, you can rest assured both parties will be examining the relevant sections in detail, so you have to be extra-certain they say what you think they say. I’ll go so far as to say that the only time anyone in the future will be looking at an executed contract is likely when a party is looking to either get out of the contract or assign it (see below). “I hate this supplier. Get me out of this contract.” Insist on a 30- (or 15-) day out, and if you can’t get that right off the bat, the next best thing is to have a 30-day out after one year.

Renewal terms. Continuing the same conversation above. Watch for stealth forever contracts, in which the renewals happen automatically unless notice is given within a very narrow window (“between 3 p.m. and 5 p.m. on the day that is thirty-seven days before the end of term”), and also make sure your client can get out any of any automatic renewal. On the other hand, if the business relationship clicks, then the parties likely won’t bother taking any action to renew the contract, and it’s always a bad idea to have a contract out there that by its terms has terminated. So automatic renewals aren’t a bad thing, just make sure your guy can get out.

Termination. Can you see the theme here? Not being able to get your client out of a bad contract will make the client curse your name every month when she writes that check to the contractor she can’t stand. Make sure the contract lets your client terminate immediately in case of a breach, or if that’s too much to ask, that any cure period is short and the contract terminates very soon after the end of the cure period. Don’t agree to a 30-day cure period and then having to give notice again after the cure period and then wait around another 30 days to finally terminate. Tell them I told you that’s unacceptable.

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Assignment. Make sure your client doesn’t need the other party’s consent to do any kind of “assignment” that is merely the result of a corporate reorganization, and also push for not needing consent if your client is being bought, since having to round up consent from everyone in the middle of an M&A deal is like herding cats.

Indemnification. If your party is the only one doing the indemnifying, strike it, otherwise make it mutual. If the situation is such that the other party will never be the cause of any liability for your client, make it mutual anyway.

Collections expenses. Make any non-paying party responsible for the legal (and other) expenses related to collections. It rarely happens that these expenses are actually paid by the other party, but this provision is often used as a “stick” to get a party to pay up (e.g., “If I sue you’ll have to pay the legal expenses just like the contract says, so you might as well pay what you owe now.”).

Amendments. Make sure they have to be signed by each party.

Governing Law and Jurisdiction. Change to your client’s home state. If that isn’t acceptable, change to whichever of these three is closest to you (and is not where the other party resides): New York, Delaware, or Nevada. You don’t want to be in the other party’s backyard to fight about some legal issue.

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Notification. Provide for email notification, since that’s how everyone communicates these days and you don’t want the other party later saying the contract wasn’t properly terminated since they were notified by email and the contract said it had to be by hand or overnight mail. Also, write in that a copy of any notifications goes to you as well as your client. It’s like free advertising.

These are all the basics that I can fit into the ATL word count. Other than the above, a lot of reviewing contracts is just using common sense. What does your client do, and what are your client’s needs regarding this contract? I once reviewed a contract for cleaning golf clubs — and I don’t play golf and have never cleaned a golf club in my life — but I assumed some chemicals are used in the cleaning process and the contract had forbid the use of chemicals on the property. I fought the point, and the middleman on the deal was impressed enough he started referring me work. A little common sense goes a long way.

Gary J. Ross is a partner at Ross & Shulga PLLC, which he co-founded in 2017 after running his own firm for four years and after several years in Biglaw and the federal government. Gary handles corporate and securities law matters for venture capital funds, startups, and other large and small businesses, as well as investors in each. You can reach Gary by email at [email protected].

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