Contracts are legal agreements that outline the terms of a business deal or arrangement. Proper drafting is key to avoid disputes, which can lead to strained relationships and other issues.
You cannot always prevent contractual issues, but knowing why disputes occur is integral to avoiding them.
Ambiguous language and poor drafting
Unclear contract language opens the door to different interpretations. When expectations differ, parties may disagree about the meaning of clauses. Accordingly, precise language in contracts can prevent such disputes.
Failure to clearly define obligations
Contracts serve as roadmaps for responsibilities. Outlining the duties, deadlines and deliverables for each party establishes a common understanding and reduces the chance of disagreements. When obligations are not defined, disputes often arise.
Changes in circumstances
Unforeseen events can also impact contractual agreements. Economic issues, natural disasters or changes in regulations can affect the validity of contracts. In this case, including clauses that anticipate possible changes can help.
Breach of contract
A breach occurs when one party fails to fulfill its contractual obligations. Whether it is a failure to deliver goods, provide services or meet deadlines, breaches can cause disputes. Clear communication can help prevent minor breaches from escalating into full-blown conflicts.
Misrepresentation and fraud
Misleading information or misrepresentation can also lead to disputes. If one party provides false information during negotiations, the other party may suffer losses. Vigilance in verifying information during negotiations is important in stopping disputes related to misrepresentation.
As reported by Entrepreneur, 50% of small businesses fail within five years of launch. Contract disputes likely represent a portion of these failures, so avoiding common issues can facilitate longevity and success.