Writing a contract is a valuable life skill to have even if you plan on hiring an attorney. This guide explains how that’s the case and what to do to develop it.
Are you about to enter a business partnership? Or perhaps you’re looking to purchase a huge property? These are only two of the many instances that require writing a contract.
A written contract is a legally binding document that creates the legal obligations of two or more parties. A contract protects all parties in case the other side decides to breach the agreement.
Though people tend to hire lawyers to draft contracts, writing a valid contract doesn’t require an attorney. As long as you know the essential elements of a contract, then it should be valid and enforceable.
The question now is, do you know how to write a contract? Continue reading below for seven of the best tips that will guide you in contract writing.
1. The Cover Page and Intro
As we mentioned earlier, different elements make up a contract. You can group some of them when going through the key steps. But first, you need to come up with a cover page for the contract.
The cover page should feature basic information about the contents of the contract. These include the name of all parties, the nature of the offer, and the exchange.
Moreover, come up with a brief but concise introduction of all the parties. Make sure to mention the legal names of everyone involved in the transaction.
If you don’t feel confident in writing a contract, you can get your contract templates here for reference.
2. The Parties Involved
Speaking of the parties, you need to identify them correctly. This is crucial as one single letter missing may invalidate the contract. Be mindful especially when the transaction involves business entities.
The rule of thumb is to name the entities using their proper corporate names. For example, you should use “Patrick’s Toy Shop, LLC” when referring to the entity in the contract. If you only use “Patrick” or “Pat’s,” then you might as well throw your contract out of the window.
On the flip side, when dealing with individuals, you need to write down their correct legal names.
3. The Details of the Deal
After getting all the names of the parties right, it’s time to move to the details of the deal. For this part, you want to spell out all the important details. The details should include all the rights and obligations that cover all parties.
This ensures that there will be no questions as to who needs to do or deliver what.
Don’t leave out any detail. This means all verbal agreements that you may have with the other party must be part of the contract. Otherwise, you may have problems enforcing them when the time comes.
In case all parties already signed the contract and you realize that you missed out on something, you may come up with a written amendment. But if the signatures are not yet in place, you may handwrite the changes and additions to the contract.
4. Be Specific on the Payments
If the transaction involves payments, make sure to specify all the payment obligations. The contract must clearly state who pays whom. It should also indicate the date when the payments should come in.
The contract should also explain the condition for making the payments. Indicate if you’re going to pay in full or in installments. If it is the latter, clearly say so in the contract.
Make sure to include the exact dates and requirements for your installments.
Like with the details of the transaction, you must be extra careful not to miss anything that concerns the payments. A lot of problems concerning contracts often involve money.
5. Simplicity is the Key
As much as you want your contract to have all the key details, try to put the wordings as simple as you can. Don’t fill the contract with legalese terms that may confuse the other party.
Instead, stick to short but clear sentences. Use simple words and phrases that the common person can understand. As for the paragraphs, it is best to number the headings.
For business contracts, use industry-specific language. This will help keep everybody on the same page.
6. Mind the Disputes
Be ready for the possibility of disputes. When disputes arise, things can easily go ugly. You may find yourself suing the other camp or vice-versa.
To avoid all the hassle and expenses of going to court, agree to arbitrate a dispute in advance. Make all parties agree to binding arbitration. If you cannot get everyone’s approval, settle for mediation at the very least.
This will save everyone a lot of time and resolve any disputes faster.
Furthermore, take note of your location as well as the other party’s. If you reside in different states, you need to settle which state law should govern your contract.
7. Clear on Termination
Last but not least, you and the other party should agree on situations that equate to the termination of the contract. Many circumstances can merit termination of the contract.
For example, if you are purchasing a big-ticket item like a real estate property, the other party may terminate the contract if you miss a lot of important payments and deadlines.
If there is a breach of contract, the aggrieved party may terminate the deal altogether.
During extraordinary times like the current pandemic, athletes are having problems with their sports clubs. Some opt not to fulfill their obligations because of the current health scare.
Thus, your contract should clearly indicate the circumstances where you and the other party can call off the contract.
Additionally, you want to include a confidentiality clause in the contract. This is important if you allow the other camp to access your private information.
Go Beyond Writing a Contract
Writing a contract is a life skill that will find handy when making big purchases or building new partnerships. It will save you from losing money and ending up on the wrong end of the bargain. But there is more to learn in transactions than contract writing.
Expand your knowledge of transactions and partnerships by reading our other articles. We discuss important topics that will help you secure the best deals possible.