How do I review a contract?
Reviewing a Business Contract can be nerve-wracking, especially if you do not work with contracts very often. However, your contracts are important. They set out your legal rights and responsibilities and can impact nearly every part of a business relationship.
For existing contracts, you can review your own to see if basic terms and conditions need updating. For example, you might look at what you or the other person agrees to deliver and at what price. In reviewing these terms, consider if they still make sense for your goals, or expected costs, for 2023. The most important terms are often the easiest to understand, so if you do not understand a specific statement, ask for more information or clearer details.
You might find it helpful to review each section and ask yourself these questions:
- Do I understand my rights in this section?
- Does this section say I have to do or not do something? Is what I have to do expected or acceptable?
- How does this section work with the other sections in the contract?
- Are there any sections that are not workable or doable?
- How can I make this contract more profitable?
Many people are reviewing their contracts in a new light because COVID-19 has created totally new situations. For example, many businesses have closed or temporarily shut down due to shelter-in-place, employees getting sick, or other pandemic-related reasons. Most had to create new operational procedures. Learning from the pandemic, businesses may want to add a contract term about force majeure, or events beyond their control, specific to COVID-19.
How do I update a contract?
You can often propose updating the terms of a contract on your own. But, if you plan to make big changes or someone else is asking for changes you do not understand, you may want to ask a lawyer for help. A major Contract Amendment can change some of the basic terms of the agreement, which can lead to huge problems. Some contract updates may affect your business in ways you may not realize, so it is usually a good idea to have a lawyer take a look.
Often, just making small changes to client or vendor contracts, like updating prices, timelines, or other simple terms, can help a business succeed. For example, you might just need to change the purchase or selling price, or change certain timelines. Whatever the case, you can usually update a contract in a few ways.
Amend the contract
You may be able to create a Contract Amendment that changes just a few terms and conditions. That amendment typically affects only the terms you want to change and leaves the rest of the contract the same.
A Contract Amendment is not really a new contract. However, it is still usually required to have each person sign it. Signing electronically can save time and the signatures of all parties confirms that the amendment is enforceable.
Extend the contract
You can often extend your existing contract with a Contract Extension Agreement. Many contracts have a specific end date. After that date, the contract no longer has any legal strength, unless the terms automatically renew or explain what happens next. If you want to keep working under the same contract, you may need to extend it so that the end date is sometime in the future, or sign a new contract.
It is a good idea to have each party sign the extension to show that you have both agreed to extend it.
Create a new contract
You can extend, update, or amend existing contracts simply by creating a new contract. You may even use many of the same terms and conditions. A new contract can be written to completely replace the old one, while an extension or amendment will continue to refer to the first contract.
If you are receiving a new contract, you may want to compare the old contract with the new one. The new contract may contain changes or additions that were not in the old contract. Spotting those changes now, before you sign, may save you from headaches later on.
What does it mean to renew a contract?
The process of renewing a contract often involves a contract review and a general update. Most vendor contracts, for example, expire after a certain amount of time. When it expires, you may need to negotiate new terms to adjust for things like supply and demand, increased costs, and inflation. When you renew a contract, you are basically starting a new contract that has very similar terms and conditions.
Expired contracts can usually still be renewed. However, some contracts might not have the same terms if you do not renew them before the end date. It is helpful to keep a close eye on the end dates of your contracts so you can work out the best terms with clients or vendors.
Renewing a contract and updating a contract are similar ideas, but they have slightly different meanings. When you renew a contract, you are often creating a new contract to extend the same terms for another set time. When you update a contract, you might change a few more things than you would if you were just renewing the contract.
In general, when you renew a contract, you are creating a new contract, even if it is almost the same as your old contract. When you extend a contract, you are usually just changing the end date that is already in the contract. Keep in mind, however, that these general definitions may not fit every situation.
What should I check for when reviewing a contract for renewal?
Contract renewal time is a great time to talk about terms and conditions in the contract that you did not like or that did not work well for you. Talking about those items first can benefit you because they may be strong negotiation terms for you.
Below are a few more items that you might want to think about discussing in your renewal:
- Contract length and renewal terms. Do you think contract renewal is required too often? Not often enough? Is the term longer or shorter than you want it to be?
- Pricing. Price is probably the most important term for a lot of small businesses. If you are reviewing a vendor contract, you may want to review if you still need the product and the price you are willing to pay for it. For example, if you order more products, can you get bulk pricing? If you are reviewing a client contract, you may want to think about whether you need to raise your prices to adjust for vendor prices or inflation.
- Overall happiness. Has a vendor met your needs? Was the product delivered on time? Were services generally good? If not, you can talk to your vendor about adding specific things to your contract that will make the service better. You might also want to add terms that allow you to stop poor service going forward.
Renewal time can also be a great time to shop around. Getting other vendor quotes might help you find a better deal elsewhere.
It is often a good idea to review and sign a new contract renewal to make sure that everyone is on the same page about the new contract.
Is it legal to change a contract after signing it?
Yes. You can nearly always change a contract after you have signed it, so long as everyone agrees to a Contract Amendment. Generally, you cannot change a contract by yourself without an agreement by everyone who signed the previous contract.
While you can sometimes change a contract by agreeing with the other party in a conversation, it is smart to get any changes in writing. Many contracts specifically require amendments to be in writing and signed. Having signatures from both parties on a written document can help make sure the changes are legally enforceable.
If you need help reviewing or refreshing your contracts for 2023, reach out to a Rocket Lawyer network attorney.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.