Free Newsletter
Every business relationship or project should start with a contract. It’s the cornerstone of the relationship or endeavor. It’s a rulebook, so to speak, for all involved parties to follow. A solid contract defines and governs the parties’ obligations when something unanticipated happens — as it often does.
Contracts determine the success or failure of their subject matter. Since the contract is the groundwork for a successful business relationship or project, a complete contract review prior to signing is critical. Yet, it shouldn’t stop there. Business contracts need periodic reviews in order to maintain their relevancy and effectiveness.
Contract review is an essential administrative means, which ensures your contracts reflect your understanding and agreement of all involved parties’ expectations and intents. The downside is that expectations, laws, and contract interpretations are ever-changing, causing what was once an excellent contract to become obsolete or lacking at best. However, regular contract reviews can identify obscurities or obsolete provisions and should highlight areas of possible improvement.
While it’s natural to want “set it and forget it,” in terms of stability and convenience in life and business, contract provisions should be reviewed routinely and carefully. A contract with biased or unclear conditions can be destructive in the event of a dispute. An outdated contract also has legal, industry, and external regulation risks.
Anytime there have been changes to local or federal laws that might impact your contracts is also an ideal time for review and possible revision.
When Should You Update Business Contracts?
Advice about when to update business contracts varies by the type of business you own, the type of contracts you have, and your goals. Typically, you should be reviewing contracts at least once every one to three years. More specifically, legal experts recommend the following timeline for reviews:
- Employment agreements – When anything changes with the type or location of employee you are hiring, and at least on a yearly basis to incorporate any changes to employment law in your state
- Non-Disclosure and Confidentiality Agreements – About once per year
- Equipment leases – Every one to two years
- Property leases – Before renewal (usually six to 12 months before the lease is up)
- Software licenses – At least every two years or with every version change
- Website agreements – Every two years
Anytime there have been changes to local or federal laws that might impact your contracts is also an ideal time for review and possible revision.
Whether you do this on your own or with an attorney’s help, schedule regular and thorough contract reviews so that you don’t overlook them while you are busy running your business.
Common Areas of Necessary Contract Review
The fact that a contract was signed and accepted initially shouldn’t keep you from regularly reviewing and searching for areas to improve, refining the terms, or taking steps to terminate the contract under specific circumstances.
Typical areas of critical contract review include:
- Key clauses and terms – This will vary by business but usually, they include terms such as confidentiality, indemnification, termination, and dispute resolution. Depending on the contract, they may change throughout the course of the business relationship. New legislation may also necessitate a change to key clauses and terms.
- Termination and renewal terms – Check the automatic renewal language and opt-out windows and make sure they are marked on your calendar.
- Language – Ensure the contract is free from any unclear or ambiguous language that might be confusing to any parties involved. Even if all parties interpret vague terms in the same way, it’s best to modify the language, if possible, to prevent potential conflicts.
- Important dates and deadlines – Be sure they are also marked on your calendar or updated as you go along and needs change.
Periodic contract reviews and updates help ensure that your business interests are protected and that you are in compliance with any applicable laws and industry regulations. You took the time to hammer out the contract, to begin with; it may need a little work now and then to continue to be a reliable and effective business tool. Whether you do this on your own or with an attorney’s help, schedule regular and thorough contract reviews so that you don’t overlook them while you are busy running your business.
Consider Enlisting Legal Help to Review Your Contracts
Although necessary and healthy for your Colorado business, reviewing and updating business contracts can become a tedious and arduous process. As a business owner, you already have enough on your plate, and you may lack the legal knowledge required to review and update your contracts adequately. It can also be challenging to keep up with national and state laws that may impact your contracts.
As such, it’s typically in your best interest to turn to an attorney or law firm that has in-depth experience performing contract reviews and updates. They can handle this task with accuracy and proficiency while you continue to do what you do best — the day-to-day management of your business. If and when a conflict does occur, you’ll know you took proactive steps to protect yourself by routinely reviewing your contracts.
Doug Griess and John Snow of Hackstaff & Snow, LLC, are top Denver business attorneys with expertise spanning various industries. Specializing in business law, litigation, intellectual property, tax law, and dispute resolution, John Snow and Doug Griess offer an in-depth understanding and knowledge of general corporate rules and regulations and are a trusted resource for business owners throughout Colorado.