Having a contract in place which protects you and your business is vital to create success. All too often entrepreneurs trawl the Internet and pull together a contract themselves. This leaves them feeling vulnerable and rightly so, after all, “you don’t know what you don’t know”. Whilst it isn’t a legal requirement that a lawyer drafts your contract for you, there are certain terms that do have legal consequences.
Before getting into the detail of what needs to be included we first need to consider, what is a contract?
In its simplest form, a contract is an agreement between two parties. The key legal elements of a contract are: an offer, acceptance, consideration (often payment), capacity, and legality.
When signing a contract each party has obligations. Those rights and responsibilities must be proportionate to each other in order to create a fair agreement. If there is not a good balance between what is promised and what is required of each party then the contract may be unfair and not enforceable by law.
This isn’t to say that the law will step in and correct a bad bargain. The court will not regularly determine a fair price for services. However, it will not allow it to be so unfair that a reasonable person would ever contract.
Contracts are not designed to trick people or get a party stuck into an agreement. Ethical business is about transparency. Therefore, if there is an unusual contract term that you want to add to a contract you should make the other party aware.
If you do want to draft your contracts yourself, here are some elements which should be included:
- Who, what, when, where, and how
This may seem obvious but it is surprising how many people leave these basics out of their contract. It’s important to confirm those who will be delivering the services. Remember, if you want a specific individual to be delivering the services such as coaching or teaching, this needs to be itemised otherwise you may just get another representative in the team.
With the move to a number of services being delivered remotely, a clause detailing where and how services will be delivered is also more important than ever. A purchaser may anticipate that they will be receiving face-to-face delivery of services, whereas you may now be operating online.
- Intellectual property and Usage Rights
When you contract with someone you don’t usually intend to give them all of your creative rights. You may be happy to permit them usage rights to access course videos or materials, however, you will want to limit those rights to state that any resources cannot be duplicated, modified or shared with third parties.
- Warnings – disclaimers and liability clauses
It is important to provide adequate warnings about your products and services. For example, if you are selling jewellery you must highlight that products are gold plated, rather than gold. If you are selling services and giving advice it is important to highlight the status of the advice e.g. that it isn’t medical or financial, if it isn’t.
There are always provisions in contracts which state that liability for death and personal injury are not excluded. You may be thinking that you don’t want to be held responsible for the injury of someone else, but did you know that you cannot contract out of injuring someone? Similarly, you cannot contract out of committing fraud or out of your own negligence. The Unfair Contract Terms Act 1977 (“UCTA”) governs the commercial scenarios and regulates the exclusions and restrictions of liability for businesses and it is also important to be aware of the requirements laid out in The Consumer Rights Act 2015 which sets out the legal framework for commercial contracts between businesses and consumers.
- Jurisdiction clause
With the rise in online businesses, you may be transacting with people across the globe. It is important therefore to state which country’s laws will apply and govern the terms of the agreement. This is especially important if something goes wrong with the contract as you will want to rely on the legal system of a particular country to get paid or recover the sums paid.
- Cover the expected eventualities
It isn’t always possible to foresee what might happen when you contract with a party but there are certain things that you can put a process in place in advance. For example, refunds and cancellation policies. Both parties go into the contract with the best intentions but from time to time the contract will not be able to be fulfilled and in those situations having set out in advance the way refunds will work makes the administration of them much more cost-effective for a business.
If you need any more support or a template contract to get you started head to lucylegal.co.uk where you will find template legal documents to support you in running your business.
Written by Lucy Wheeler, Solicitor, and founder of legal templates company Lucy Legal and law firm Wheeler Wood.