 |
| Do not sign a contract without knowing what rights the law gives you. Photo: Yanalya, Freepik |
By
Renting an office, leasing land, taking out personal loans, or forming business partnerships all require contracts. Often, you sign documents without fully understanding the legal terms and simply trust verbal promises. Signing without understanding what's in the document leads to things going south. As a result, your expectations from the contract are not met. Therefore, you should always seek professional help, no matter how small the contract seems. However, if for some reason you are hesitant to consult a contract law firm, this article can provide helpful advice. Still, it shouldn’t replace proper legal guidance, and you should seek professional help whenever necessary.
Here are seven phrases in your contract you should understand before signing one.
Read More: Tenant Rights and Responsibilities Everyone Should Know
1
"Binding Arbitration"
After reading this, you may think this phrase means a fair and simplified way to solve disputes. But it actually means you’re giving up your constitutional ‘day in court’ and participating in a class action.
It’s a widely used and influential clause in modern contracts. A 2023 study by the Stanford Law Review found that more than 80% of major consumer and employment contracts now contain a mandatory arbitration clause. This clause, when used in a contract, can confer special benefits on your landlord, employer, or even business partner. When you sign it, you agree that any future disputes will be resolved by a private arbitrator, not a judge or jury. Case proceedings are often secret, so the rules can be tilted in favor of the party that appears in the same dispute system over and over again, and your right to appeal is imperceptibly weakened. So, if you see this in the contract, know that you’re closing the doors to the courthouse.
2
"Indemnification and Hold Harmless"
It may sound like legalese fluff. But it actually means your personal wallet is on the hook for someone else’s mess. This means you agree to bear any losses, damages, or legal costs incurred by the other party, even if the problem is partly your fault.
This is one of the most financially dangerous clauses in any contract. For example, say you rent a venue for an event, and someone slips and sues. An overly broad indemnity clause could force you to pay the venue’s legal bills, even if it's their fault entirely. Research from Cornell’s Legal Information Institute notes that these clauses are the primary cause of business-to-business litigation, precisely because their extent is often contested. This legal phrase actually turns you into an insurance policy.
3
"Time is of the Essence"
This phrase changes a contract from a flexible contract to a hard deadline. If you miss a deadline by even one day for any reason, the other party can legally terminate the entire agreement and potentially sue you for breach.
This is a strict clause in the contract regarding payments, deliveries, or any response. If you are not 100% confident that you will be able to meet the deadline, consider this clause before committing to it. For example, in commercial real estate sales, both the buyer and seller must complete the property sale on the exact agreed-upon date. Otherwise, the non-observant party may face legal consequences.
4
"Including But Not Limited To"
This legal phrase may sound like a harmless list of examples. But, it actually defines that the list is only a small part of the whole.
This phrase means examples clarify the meaning of the writing, but the contract wants to make sure that the examples are not the only situations or things included in the meaning of the writing. For example, if an insurance policy wants to exclude natural disasters, it might say something like "Acts of nature are excluded from coverage, including but not limited to tornadoes, hurricanes, and floods." This means that tornadoes, hurricanes, and floods are included in the clause, but also other such things. This phrase in a contract makes the defined limitless. Push to replace it with a closed, exhaustive list ("specifically A, B, and C").
5
"Sole Discretion"
This phrase sounds like the authorized party will be reasonable. But, it really means one party has the exclusive right to make a decision.
This phrase gives one party special powers, and there are many examples of abuse of this power. The agreement states that your landlord can refuse to sublet "in their sole discretion", and your employer can change your job responsibilities or bonus structure "in their sole discretion". It is almost impossible to challenge such a clause in court, as it specifically negates any inherent requirement of "reasonableness". So, try not to sign a contract with this phrase. Try to negotiate it down to "reasonable discretion."
6
"Integration Clause" (or "Merger Clause")
This phrase can sound like a meaningless boilerplate. But it often means the contract contains the complete and final agreement between the parties. This means that anything outside the agreement will be ignored unless it is expressly stated.
For example, that verbal promise your boss made about flexible working hours and that new roof the seller promised; if it is not explicitly written into the contract, this clause legally erases it. That is, all verbal promises are invalid unless they are stated in the contract. A 2022 paper in the University of Pennsylvania Law Review argues that this clause is powerful in court, routinely excluding evidence of prior discussions. So, get every promise, assurance, and understanding in writing before you sign.
7
"Joint and Several Liability"
It may sound like a partnership term to you. But it means you and others share responsibility, but anyone can be made to pay for everything. This means an injured party can demand the entire payment from any one of the parties, not just a proportionate share.
Commonly used in leases and business partnerships, this means that each person who signs is individually liable for the entire obligation. For example, if you and two roommates sign a lease with this clause and they both leave town, the landlord can legally force you to pay 100% of the rent. So, understand who you're signing with and consider whether a more equitable contract is possible.
Read More: How to Help Out Someone Who's In Trouble with the Law
Apart from the phrases mentioned in this article, many other legal clauses may be in the contract that you should carefully review with a lawyer to lower the risk of serious legal and financial consequences. Do not sign a contract without knowing what rights the law gives you and what rights you may be giving up.
