If you are negotiating a contract, Cvetanka Trpeski from Swaab Attorneys has tips toget a good one, and shares the traps that sometimes snare the unwary.
Negotiating a contract shouldn’t be like pulling teeth. Usually, you and the other party have converging interests. It makes sense to work together, not against each other.
Simple and complex contracts
The more certain you are about what you’re negotiating, the easier it is and the less time it takes. For example, in a straightforward contract for sale of property, both sides have clear-cut obligations. Once they meet those obligations, the deal is done.
Complexity arises where there is less certainty and where third parties are involved. For example, if the vendor has to obtain development consent to subdivide and the property has to be rezoned, the drafting and negotiation become much more detailed. What happens if development consent is not granted? Do you appeal? Within what timeframe? The contract needs to take the full range of possible outcomes into account.
You need an experienced commercial lawyer
It is vital to engage an experienced commercial lawyer. Lawyers who are out of their depth can make negotiations far more lengthy and complex than they need to be.
This happens from lack of knowledge of standard practices and from sheer anxiety. Lawyers can become pedantic to the point of neurosis because they are anxious not to miss the tiniest detail. This can make them give needlessly long-winded advice and insist on contractual amendments which don’t bring you any real benefits.
In one property transaction I worked on, the contract went through 18 revisions before we finally got the deal over the line six months down the track. The point here is that you’re paying for the lawyer’s time.
A less experienced lawyer might charge at a lower rate, but if he or she takes 30 hours to do something that an experienced one would do in 10, engaging the experienced lawyer at the higher rate saves you money.
Balance of power between parties
Sometimes you may find yourself negotiating a contract where the other party has a lot more power than you do. For example, a supermarket which is a desirable anchor tenant in a shopping centre can have enough clout to refuse to make any concessions whatsoever. If you’re dealing with a behemoth, your only options might be to take it or leave it.
Real and bogus concessions
A skilful lawyer will know when a proposed contractual amendment can be accepted and when it’s important to argue the toss. Some amendments will not make a scrap of difference to the outcome. For example, under Australian law there is no practical difference between making “reasonable endeavours” and “best endeavours” to ensure that something is done. However, many lawyers will seek to change “reasonable” to “best” on the incorrect assumption that “best” implies a higher standard.
Making a bogus concession on an inconsequential point like this could help you negotiate a real concession that actually benefits you.
For example, if you’re a tenant taking a lease of premises, you could seek to have the land tax calculated on a single holding basis, so that you get the benefit of the tax-free threshold. Instead of agreeing to meet “all outgoings, costs and expenses”, you could aim to change it to “all reasonable outgoings, costs and expenses”. If you need to ask the landlord for consent on something, you might want to add that that consent is not to be unreasonably withheld.
Being fair and reasonable
Fortunately, most people and companies want to be fair and reasonable. In the majority of contractual arrangements, both parties stand to benefit. It makes sense to work together.
The contract is like a framework of fairness in dealings between two parties. While you’re getting along, it’s all plain sailing. But if things start to turn sour, you’ll be relying on the contract to assert your rights. That’s why it’s important to get it right.