No matter the type of contract, the following simple, and often overlooked, terms can provide significant protection and leverage in the event of a default by the other party.
- Late Payment Fees. A late fee or default interest allows companies to mitigate losses for late payments and provides an incentive for the other party to make timely payments.
- Attorneys’ Fees Clause. An attorney’s fees clause provides that if a dispute arises that results in litigation, the losing party is responsible for the prevailing party’s legal fees. Faced with paying the other party’s legal fees in the case of a dispute, becomes great leverage for the non-breaching party to force an amicable resolution.
- Choice of Venue. Setting a venue in a company’s home jurisdiction for dispute resolution creates leverage against a distant party who will be faced with additional time and expense required to litigate a dispute in a distant jurisdiction.
- Termination Without Cause. Service contracts often have a fixed term of a year or more, and provide for automatic renewal if a notice of termination is not delivered within a certain window prior to the expiration of a term. Therefore, if a company is not happy with the services, it is locked in for the remainder of the applicable term. If it misses a termination deadline, it may be locked in for a renewal term. The right to terminate an agreement, at any time, and for any reason, provides leverage if services are substandard, or the company finds a better option. A middle ground is to set a minimum period after which a termination without cause provision may be exercised (i.e., 3 months), or to include a reasonable early termination fee. At a minimum, include a right to terminate for any reason and at any time after the initial term.
- Confidentiality Provisions. In contracts in which sensitive information may be disclosed, companies should include a confidentiality provision that permits equitable relief in the case of a breach.
The information contained in this article is strictly for educational purposes and is not intended to be legal or tax advice or to be relied upon by anyone without doing their own research, and consulting with legal and tax advisors.