Noted author and business attorney Peter Siviglia once said: “In this world, … there are two forms of writing: creative (such as novels, plays, and poetry) and expository (such as treatises, letters, memorandums, and briefs). I’ve tried both and prefer a third: Contracts, which do not entertain, do not convey information or ideas, and do not try to persuade.”
In the world of commercial real estate and construction contracts, Siviglia hit the nail on the head. Using some of Siviglia’s tips in Courses on Drafting Contracts, 12 Scribes J. Legal Writing 89 (2008-09), here are a few items to think about when drafting contracts:
- A contract is about defining transactions and relationships. This is more than the definition of “contract” that lawyers learn in law school (i.e., “An agreement between or among two ore more parties for the purpose of …”). According to Siviglia, the contract will help define: (1) a transaction, such as the purchase of real estate; (2) a relationship, such as a partnership, or (3) a combination of both, such as a partnership to purchase and develop real estate.
- A contract is a set of instructions. Just like the building plans and specifications instruct the contractor how to build the water treatment plant, commercial condo or new hospital, the written contract instructs the parties on their course of conduct in the transaction. And when problems arise … and they will … the written contract instructs the parties on how to perform in such circumstances. The contract defines due diligence issues on the front end; it defines performance obligations during the contract performance period; and it defines how disputes will be handled in the event of disagreement.
- A contract should include standard provisions. Although each contract is different, there are a number of terms and conditions that are part of the “A Player” list, including:
- Termination, which defines the parties’ rights to terminate the contract;
- Assignment, which outlines whether the parties are allowed to assign their rights to another party and the terms in which they are allowed to do so;
- Governing law, which defines the law (i.e., Tennessee, Virginia, New York) that will apply to the parties’ contract in terms of both substance and procedural issues;
- Disputes, which defines whether the the parties will litigate in court, mediate, or arbitrate;
- Notice, which identifies where legal notice of disputes, claims, changes, etc. are directed;
- Modifications, which outlines the procedures for modifying or amending the contract terms (not to be confused with a “changes” clause);
- Changes, which outlines the procedures for modifying or changing the scope of work by one of the parties (not to be confused with a “modification” or “amendment” clause);
- Claims, Rights and Remedies, which describes the method for submitting claims and may also include rights to recover or limit certain types of damages (consequential damages, liquidated damages for delays, attorneys’ fees, interest); and
- Indemnification, which describes the circumstance in which one party may have to indemnify (or pay the losses or claims) of the other party for some legal purpose.
Of course, each transaction or relationship should have a written contract tailored to its own project or development needs. In other words, while standard form agreements can be used on successive and multiple transactions, each project should nonetheless be reviewed for the applicability of particular standard form provisions to the particular project. On occasion, circumstances dictate the necessity of revisions to your standard agreement.