Background
According to Burns
of Praxis Legal Solutions (2014), if you run a business, your business depends
on all kinds of relationships: With customers or clients; with employees; with
vendors of goods and services; with lenders and landlords, just to name a few.
Each party to a business relationship brings to it a set of expectations with
respect to what he or she will give and get. A contract is a useful tool for
describing and defining the expectations of each party to a business
relationship. Why
is this important?
Establishing a
measure of certainty
Think of a business
relationship as a house. A contract is the blueprint for building that house; a
reference for its operation and maintenance. A contract captures the rights and
obligations of each party; the terms and conditions of their respective
performance; and what each party will gain from the relationship. A contract
articulates remedies in the event that one or the other party fails to perform
as expected/required. By clearly defining the terms and conditions of a
business relationship and the consequences of a failure to perform in
accordance with those terms and conditions, a contract provides a measure of
certainty, and can quantify the upside and downside inherent in a business
relationship.
It’s all in the
details
To understand how a
contract works, we can look at a lease, which is one kind of contract. If I
want to lease office or warehouse space, I first want to quantify exactly how
much space I want to pay for, and how much I will pay. I want to be specific
about the term of the lease, and what I may or may not do to the leased space
in terms of renovations or alterations. I want to know whether and when the
landlord can raise the rent. Are utilities included? Who pays the taxes? Is the
building insured? Will that insurance cover my space? What happens if I don’t
pay the rent? Or if the roof leaks and the landlord delays or fails to repair
it and my property is damaged?
