- Almost every contractual dispute starts in a clause that looked routine and was signed without a calm reading.
- Five points account for much of the trouble: term, liability, exclusivity, price and jurisdiction.
- Reading well is not distrust: it means checking that what was agreed matches what is written, before signing rather than after.
A contract is signed in a day and lived with for years. Almost every problem we see was written in from the start, in clauses that looked like boilerplate.
That is understandable. At the end of a negotiation, with the commercial deal settled and both sides eager to begin, the legal text feels like a formality to be checked quickly. Yet it is that text, not the earlier conversations, that will apply on the day something goes wrong. It is worth reading it as someone who imagines the worst reasonable scenario, not the most likely one.
1. Term, renewal and exit
How long does it last, does it renew automatically and what does it take to leave? An automatic renewal with six months’ notice can tie you to a supplier for far longer than you thought.
The problem is rarely the initial term, which is usually remembered, but the renewal mechanism. If the contract rolls over for successive periods unless one party gives notice in advance, letting a single date pass is enough to be committed for another full period. Put the deadline in a diary, and find out how the notice must be given: in writing, by a specific channel and to a specific address.
2. Liability and its limits
Who is liable for what, and up to how much. A poorly set liability cap leaves uncovered precisely the risk that mattered most.
Most contracts limit the liability of one party, sometimes of both. Check what the limit is measured against: the price of the service, a share of annual billing or a fixed sum. If the service is cheap but the potential damage is large, the liability cap may sit far below the real loss.
Notice also what is left out. Many clauses exclude loss of profit or indirect damage, which are often the very losses that matter most to a business. And check that what the contract says fits the insurance in place: a generous cap is of little use if the supplier’s policy covers much less.
3. Exclusivity and non-compete
Agreeing not to work with others, or not to compete, has a price. It is worth knowing what it is, in which territory and for how long.
Exclusivity is often traded for better terms, and it can be a good deal. But it restricts your freedom to act and should be weighed as such. Ask which clients or markets fall out of reach while it lasts.
With non-compete undertakings the drafting matters a great deal. A broad definition of competing activity, an oversized territory or a duration that runs on after the contract ends can prove disproportionate and lead to disputes that nobody wants to settle in court.
4. Price, reviews and penalties
How the price is updated, what happens if payment is late and which penalties apply. Small figures, multiplied by the years, stop being small.
A price is not just a number, it is a formula. Check whether it is updated each year and by what index or criterion, whether upward reviews depend on one party alone and whether other items are charged separately: travel, licences, minimum volumes or administration fees.
Look too at the rules on late payment. Default interest, fixed penalties and the right to suspend the service or terminate the contract are common, and can be triggered by minor delays.
5. Governing law and disputes
Which courts, which law and whether there is arbitration. Litigating far away or under a foreign law makes any claim more expensive, however reasonable it is.
When the parties are in different countries, or one of them is a large company, the contract often names courts and a law that are not yours. That is a legitimate choice, but it has a practical cost: hiring lawyers elsewhere, running proceedings from a distance and waiting for unfamiliar timetables.
Arbitration can be a good alternative, quicker and more confidential, though not always cheaper. Find out who bears the costs. Before signing, ask yourself what it would really cost to claim a reasonable amount, and whether it would be worth doing so.
Reading a contract properly is not distrusting the other side. It is making sure that what was agreed is what is written down.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
