Commercial contracts form the foundation of business relationships, providing clarity and mutual understanding between parties. A well-drafted contract not only defines obligations but also mitigates potential disputes and financial risks.

However, if you’re not a lawyer, it can be hard to know what you’re looking at. We unpack some of the common clauses in commercial contracts, so your business can better manage risks, avoid disputes, and foster stronger partnerships.

Key clauses

Indemnity clauses

Protection from financial loss indemnity clauses are a common feature in many contracts, designed to transfer risk from one party to another. These provisions outline where one party agrees to compensate the other for specific losses or damages. This is particularly important in industries such as construction, technology, and manufacturing, where indemnity clauses help manage risks effectively. However, their implications can be complex.

Ensuring these clauses are precise and balanced is crucial to avoiding costly disputes and unexpected liabilities. If you are required to provide an indemnity (becoming the indemnifier), it is essential to understand the potential consequences and take steps to safeguard your position. For further guidance, we’ve created a comprehensive checklist to help navigate indemnity clauses effectively.

Termination clauses

Defining exit strategies termination clauses outline the conditions under which a contract may be ended by either party. Whether due to a breach, mutual agreement, or specific triggers (like insolvency), these provisions provide a roadmap for ending the relationship while minimising legal exposure. Including notice periods and detailing the consequences of termination can make transitions smoother.

Dispute resolution

Mediation, arbitration, or litigation dispute resolution clauses determine how conflicts arising from the contract will be resolved. Options include mediation, arbitration, or litigation (court proceedings). By selecting a method aligned with the nature of the relationship and potential risks, businesses can control costs, time, and confidentiality during disputes.

Force majeure

Planning for unforeseen events force majeure clauses relieve parties from their contractual obligations during extraordinary events beyond their control. These events can include natural disasters (e.g., earthquakes, hurricanes, floods), adverse weather conditions, wars, pandemics, government-imposed restrictions, or other significant disruptions.

A well-drafted force majeure clause should clearly define qualifying events, specify procedural requirements (e.g., notice periods), and outline the rights and obligations of parties during such events. This ensures that both parties understand their responsibilities and protections should unforeseen circumstances arise.

Why these clauses matter

Each of the above clauses plays a pivotal role in protecting businesses from uncertainties and conflicts. Indemnity clauses safeguard financial stability by managing risk and allocating responsibility for losses. Termination clauses provide clarity and structure for ending agreements, ensuring smoother transitions and minimised exposure. Dispute resolution provisions offer efficient pathways to resolve conflicts, reducing the time, cost, and complexity of legal battles. Lastly, force majeure clauses act as a safety net during extraordinary events, helping businesses navigate unforeseen disruptions with clear protocols and protections. Together, these elements fortify contracts, enabling businesses to operate with confidence and adaptability.

Given the complexities of commercial contracts, it’s crucial for businesses to seek legal counsel when drafting or reviewing agreements. A tailored contract reflects the unique needs of your business, aligns with regulatory requirements, and minimises risks. By prioritising clear and comprehensive documentation, businesses can build stronger partnerships and achieve long-term success.

If you don’t have legal counsel, outsource to Source. You’ll gain access to an in-house style legal team that supports you with the day-to-day legal needs – all within a fixed monthly retainer. Reach out to learn more.