Back to Blog
legal agreement

Why use a lawyer when you can buy a legal agreement?

November 21, 2011

In business, contracts and agreements are part of daily life. Consulting a lawyer to draft all your agreements can be expensive, so in practice, only bigger businesses have the resources to get legal advice every time they need an agreement.

As an entrepreneur you will find it necessary to document many of your own agreements, and should know which ones are too important to draft yourself.

Written agreements are binding documents that define the obligations of the parties involved in a specific project. So it’s advisable if you sell a good or service, to have a clear record of what was actually agreed. Memories fade, and a written record ensures that if disagreements arise later about what was actually intended or agreed, you will have documents to look at to see what was actually intended when you entered into the arrangement.

So, should you buy a legal agreement to use when entering into a new type of arrangement?  In my view this can be dangerous because there is no such thing as a standard template.  The context in which you use a template will differ from the ‘standard’ scenario envisaged in the basic template.  So, you will need to tailor the template to suit your particular transaction.

The terms of your particular deal are more likely to be accurately reflected in your document if you avoid using a ‘standard’ template.  I’ve seen many completely rubbish agreements signed by entrepreneurs who drew comfort from the fact that they were using an existing template.  Unless you have solid familiarity with the template and know how to adapt it to suit your particular transaction it may be better NOT to use legal templates as the starting point when drafting your own agreements .  Instead perhaps use them as a guide as to what to include in your own drafting (subject to the point I make below about avoiding use of any legal terminology, or clauses you don’t understand).

If you have a lawyer create an agreement for you and negotiate and redraft variations of it, you may develop the necessary familiarity with that particular template to reuse it on your own.  But otherwise, in my experience it’s safer to record simple agreements by emailing details of the ‘deal’ and asking the other party to confirm by email that the terms are correct as written in your email. Here are a few elements of written agreements to focus on:

1. Define the scope of work.

2. Indicate exactly what is to be done by whom and within what time frame. Also indicate who determines if the work has been completed satisfactorily.

3. Establish time frames.

4. Indicate how long the agreement lasts and how you will be able to terminate it sooner if for any reason either of you want to do so.  There should be a clear exit strategy.

5. Establish milestones and indicate when payments are to be made and clarify payment arrangements.

6. Focus especially on clarity about money issues: who pays what, when and how. What happens if payment is not made on time?

Be sure to avoid using legal language unless you know really well what those terms mean.  Legal terminology if misused could have unintended consequences on your circumstances.  For example, if you intend to give someone sole rights to distribute something but use the wrong term and give them exclusive rights instead, the legal consequence is that you give the other party all the rights, and deprive yourself of the right to distribute that thing yourself.  Nor should you ever say ‘sole and exclusive’.  This is a tautology.  Each of these words has a very precise legal meaning and consequent impact on the scope of the rights granted.  Be clear whether you mean ‘sole’ or ‘exclusive’. That’s why in my opinion  it’s far better to avoid such pitfalls by using plain English.  Say exactly what you mean in ordinary language you both understand.  Whether you’re agreeing something with clients, vendors, joint venture partners, affiliates, or anyone else for that matter, by ensuring the details are documented in a style and language you both understand, it’s much more likely you’ll end up with an effective written agreement.   

The benefit of recording the terms of your agreements in writing is that you air issues upfront and sort essential details out so you stand a better chance of negotiating your own solution if things don’t work out between you.  Next week I’ll explain what tends to happen when two parties end up in a dispute they can’t resolve without the help of lawyers.

Going through this process of documenting your agreement could very quickly show if you are about to engage in business with someone you shouldn’t be entering into business with.

Obviously, complex agreements (especially where a great deal of money is at stake) should always be drawn up or reviewed by a lawyer. It would be false economy not to consult a lawyer if the transaction concerns a commercially significant issue for your business.  Otherwise you will spend ten times as much ultimately on legal fees.