Five things to consider when entering into an agreement

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25 June 2015

When you consider the role that agreements play in governing contracting relationships in business, it is apparent how important it is to ensure that the agreement adequately deals with the different eventualities that may arise. The following are examples of matters that should be considered when entering into an agreement.

 

Duration and Termination

 

Often parties neglect to stipulate the length of the agreement, whether it is for a fixed term or for an indefinite period, and to provide for the different ways in which it may be terminated.

 

An agreement may be terminated because the agreed time period for which it was to endure has come to an end, because one of the parties has failed to perform one or more of its obligations, because one of the parties has breached one or more of the terms of the agreement, or for convenience.

 

Additionally, an agreement should provide for the rights and obligations of the parties upon termination of the agreement; specifically whether any rights and obligations are to survive the termination of the agreement and whether any compensation or redundancy fees are payable.

Performance Criteria

 

When setting out the duties of the contracting parties, it is worthwhile to consider whether provision should be made for minimum standards for performance. To do so would bring certainty, as the expectations of the parties would be made express upfront, and this would make for a more harmonious contracting relationship.

 

Performance criteria can go hand-in-hand with termination, by allowing a party to exit the agreement if the other fails to meet the minimum standards, or they may set in motion remedial measures that need to be taken in order to ensure that goals are reached.

 

Should You Provide for Arbitration to Resolve Disputes?

 

In the event that your agreement contains an arbitration clause, this would oblige you to refer any disputes to arbitration. In such a case, if a party wishes to resist the referral of a dispute to arbitration, that party must show special circumstances why the parties’ choice of arbitration as a dispute resolution mechanism should not be respected.

 

The benefit of arbitration is that there may be a time saving in arbitration proceedings when compared to court proceedings, as the parties don’t have to adhere to court time periods or wait for long periods of time for the case to be heard. However, arbitration is more costly than court action, as the parties are required to pay for the venue for the hearing as well as the arbitrator’s fees.

 

Who Owns the Intellectual Property?

 

Intellectual property, or the creations of the mind, includes discoveries,inventions, product names and images associated with products, businessknowledge and information.

 

Most transactions involve the use and/or creation of intellectual property, and as there is value therein, agreements should provide for the ownership of such intellectual property and if necessary, the transfer thereof. In the absence of agreement, the default position with regards to the ownership of intellectual property may not favour the parties.

 

Should you seek Legal advice?

 

The particular facts and circumstances surrounding transactions influence the terms of agreements, which is why there is no such thing as a generic, one-size-fits all agreement. It is therefore worthwhile to seek legal advice as to whether the terms of an agreement are suited to the circumstances and whether provision has been made for all reasonably foreseeable issues that may arise.