5 Contract Clauses Every South African Business Owner Should Understand
Commercial contracts are more than formalities. They allocate risk, establish expectations and provide a framework for what happens when a business relationship does not go according to plan. Before signing an agreement, business owners should understand the clauses that can have the greatest practical impact on their business.
1. Payment Terms and Interest
Payment clauses should clearly state what is payable, when payment is due, how invoices are issued and what happens if payment is late. Depending on the agreement and applicable law, the parties may also provide for interest on overdue amounts.
Businesses should check whether payment is linked to milestones, delivery, acceptance of work or another event. Ambiguous payment provisions can create disputes about when an amount actually became due.
Also consider whether the contract gives one party a right to suspend performance when payment is overdue. That can be particularly important where continued performance involves significant costs.
2. Scope of Work and Deliverables
A contract should make it reasonably clear what each party is expected to provide. For services or projects, this can include specifications, quantities, deadlines, quality requirements, approval processes and responsibility for additional work.
Vague descriptions can lead to scope creep. A business may find itself expected to provide work that was never properly priced or agreed. Where changes are likely, the agreement should explain how variations are requested, approved and priced.
3. Breach and Remedies
The breach clause deals with what happens when a party fails to comply with the agreement. It may address notice of breach, an opportunity to remedy the breach, damages, suspension of obligations or cancellation, depending on the circumstances and the terms of the contract.
Businesses should understand the consequences before signing. A clause that appears routine may contain short notice periods or requirements that must be followed before a remedy can be exercised.
4. Termination
Termination provisions determine how and when the contractual relationship can come to an end. Some agreements allow termination on notice, while others provide for termination only following specified events or breaches.
Check what happens to outstanding payments, confidential information, intellectual property, ongoing projects and other obligations after termination. Certain provisions are intended to continue after the agreement ends, so the wording should be considered carefully.
5. Dispute Resolution and Jurisdiction
A dispute resolution clause establishes the process the parties will follow if a disagreement arises. It may provide for negotiation, mediation, arbitration or court proceedings, and may address the applicable jurisdiction.
South African businesses should understand where a dispute may need to be dealt with and what procedural steps must be followed first. A poorly understood dispute clause can add time and cost when a commercial relationship has already become difficult.
Before You Sign
Do not focus only on the commercial price or headline terms. Read the agreement as a whole and consider how the clauses interact. In particular, check payment obligations, deliverables, breach provisions, termination rights and dispute mechanisms against the actual way the business relationship is expected to operate.
Contracts should also be drafted with the particular transaction and risks in mind. There is no single set of clauses that is appropriate for every business or agreement.
Henk Scheepers Inc assists businesses with the drafting, review and negotiation of commercial agreements, including contracts, leases and related business documentation. If you are about to sign an important commercial agreement, obtaining legal advice before signing can help you understand the obligations and risks created by the document.
Contact Henk Scheepers Inc to discuss your commercial contract requirements.
Call (021) 526 0338 or email rikus@hsattorneys.co.za to enquire about drafting or reviewing your business contract.
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