Entering into a commercial agreement is an important step for any business. Whether you are working with a new supplier, entering a partnership, purchasing services, or negotiating a major business transaction, the terms of the agreement can have a lasting impact on your business.
It can be tempting to focus on the overall deal and move quickly toward signing. However, small details in a contract can create significant obligations or risks later.
At Merchant Law Firm, we help businesses review and negotiate commercial agreements so they understand their rights, responsibilities, and potential risks before signing.
Here are some of the key terms businesses should carefully review before entering into a commercial deal.
1. Payment Terms and Pricing
One of the first areas to review is how and when payments must be made.
The agreement should clearly establish:
- The total price or applicable fees.
- Payment deadlines.
- Deposits or upfront payments.
- Late-payment fees or interest.
- Whether prices can increase during the agreement.
- Any additional costs or expenses.
- Conditions for refunds or credits.
Businesses should also look for language that allows the other party to change pricing or introduce additional charges without their approval.
Legal Tip: Make sure the payment terms reflect what was actually agreed upon during negotiations. Verbal discussions should not replace clear written terms.
2. Scope of Work and Deliverables
A commercial agreement should clearly explain what each party is expected to provide.
Vague descriptions can create disagreements about whether a party has fulfilled its obligations. A strong agreement should identify the relevant services, products, deadlines, performance standards, and deliverables.
Consider whether the agreement clearly answers:
- What exactly is being provided?
- When must it be delivered?
- Who is responsible for each task?
- What standards must be met?
- What happens if specifications change?
The more important the deliverable, the more carefully it should be defined.
3. Term and Renewal
Businesses should understand exactly how long an agreement will remain in effect.
Some agreements automatically renew unless one party provides notice within a specific period. Missing that deadline could result in another contractual term.
Review:
- The initial contract period.
- Renewal dates.
- Automatic renewal provisions.
- Required notice periods.
- Conditions for extending the agreement.
Legal Tip: Calendar important renewal and notice dates so your business does not unintentionally remain committed to an agreement it no longer wants.
4. Termination Rights
Every business should understand how an agreement can come to an end.
Contracts may allow termination for specific reasons, such as a material breach, failure to pay, insolvency, or failure to meet performance requirements. Some agreements may also permit termination without cause if sufficient notice is provided.
Pay close attention to:
- Who can terminate the agreement.
- What constitutes a breach.
- Whether there is an opportunity to correct a breach.
- How much notice is required.
- Whether termination fees apply.
- What obligations survive after termination.
A contract that is easy to enter but difficult to exit can create problems if circumstances change.
5. Liability and Indemnification
Liability provisions determine who may be responsible if something goes wrong.
Depending on the transaction, a contract may attempt to limit one party’s liability or require one party to compensate the other for certain claims, losses, or damages.
Businesses should carefully consider:
- Liability limitations.
- Indemnification obligations.
- Exclusions from liability limits.
- Responsibility for third-party claims.
- Insurance requirements.
These provisions can significantly affect the financial consequences of a dispute.
Legal Tip: Never assume that liability language is standard or harmless. Its impact depends on the specific transaction and the risks involved.
6. Representations and Warranties
Representations and warranties are statements that a party makes about certain facts, circumstances, or obligations.
For example, an agreement may contain statements about authority to enter into the contract, ownership of assets, compliance with applicable laws, or the quality of goods or services.
Before signing, businesses should make sure they can actually stand behind any representations they are making.
A seemingly simple statement can create legal exposure if it later proves to be inaccurate.
7. Confidentiality and Intellectual Property
Commercial deals frequently involve sensitive business information, including customer information, pricing, trade secrets, processes, technology, and other proprietary materials.
The agreement should clarify:
- What information is considered confidential.
- How confidential information may be used.
- Who owns intellectual property created during the relationship.
- Whether either party receives a licence to use intellectual property.
- What happens to confidential information when the agreement ends.
This is particularly important when a third party will have access to valuable business information or contribute to the development of intellectual property.
8. Dispute Resolution and Governing Law
Even when both parties expect a successful relationship, it is important to know what happens if a disagreement arises.
Commercial agreements may specify:
- Which state’s law governs the agreement.
- Where disputes must be resolved.
- Whether disputes must go through negotiation or mediation.
- Whether arbitration is required.
- Which courts have jurisdiction.
For Arizona businesses working with companies in other states, these provisions can be especially important because the location and governing law may affect how a dispute is handled.
9. Changes to the Agreement
Businesses should also determine how the contract can be modified.
A well-structured agreement will generally explain whether changes must be made in writing and approved by both parties.
This helps prevent disagreements about whether a conversation, email, or informal agreement changed the original contract.
If an important commercial term changes during the relationship, make sure the change is properly documented.
10. The Fine Print Matters
Some of the most important contractual provisions can be found outside the main commercial terms.
Before signing, review provisions relating to:
- Assignment.
- Force majeure.
- Insurance.
- Compliance with laws.
- Notices.
- Confidentiality.
- Non-solicitation obligations, where applicable.
- Survival of certain obligations.
- Entire agreement provisions.
These clauses may not receive much attention during negotiations, but they can become extremely important if the relationship changes or a dispute develops.
Don’t Sign Until You Understand the Deal
A commercial agreement should do more than record the basic terms of a transaction. It should clearly establish expectations, allocate responsibilities, and address what happens when circumstances do not go according to plan.
Before signing, businesses should take the time to understand the financial obligations, performance requirements, termination rights, liability provisions, intellectual property terms, and dispute-resolution procedures contained in the agreement.
At Merchant Law Firm, we help businesses review, negotiate, and structure commercial agreements with their broader business objectives in mind. Having legal counsel involved before an agreement is signed can help identify potential issues early and give business owners greater confidence in the deal they are entering.
The best time to address a contractual risk is before you sign—not after a dispute arises.
