Cheat Sheet for Beginners - How to start reviewing any Commercial Contract

Core elements of a Commercial Contract

Starting a contract review - image showing the words “I am still learning” with alphabet blocks

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We all know that reviewing contracts can be difficult, but if we break down to the basics, a contract is nothing but a document capturing the duties and rights of each party (of course within the legal framework).

When you are starting out to review a contract, the first thing to do is to get a sense of the transaction. Are you getting something by paying money, or are you the one providing something for money. Even if you are paying, let’s say renting a car and buying a car both fit into this, but they are not the same, they have absolutely two different kinds of content. Insurance as an example would depend on whether you are renting or buying, same for maintenance - hence, first the transaction needs to be understood, then the documentation would follow.

Accordingly, the factual transaction is the centre around which the entire review should revolve.   

What (and Why)

What is the transaction or arrangement (which goods/service, which collaboration).

Who

Who are the parties entering into the contract.

How

What, Why, Who, How, When, Where, What if under a contract - image showing the alphabets HOW

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Which parties will do what (services/goods, etc.), and in exchange of what (payment/barter), and how will those things be done (for example, will the services be delivered onsite or remotely - which will then have a trickle effect to aspects like insurance and liability).

When/Where

When will things be done (for example, payment - will be in advance or in arrears).

Where will things be done (for example, if it’s purchase of goods - will it be delivery or collection, and which location).

What If

What if things are not done (repercussions - termination, indemnity/liability, disputes resolution, etc.).

This will be the key to reviewing a contractual document. It’s very normal to be drowned in the legal language of a document received for review, but the trick is to try and get a sense of the purpose and factual arrangement of the contract in the first reading, and then try and review the other clauses around it in detail.

Every provision should be read, reviewed and edited linking and keeping in mind this core.

Examples

If someone is renting an apartment, what would they look for in that contract – rent amount of course, payment instalments/dates, security deposit, start date and duration of the contract, identification of property and premises, duties as the tenant, landlord’s duties (as an example, who does what for maintenance and repair), exit out of or termination of the contract, refund of rent if terminated, whether the landlord covers insurance of the building, what happens when either party does not fulfil their obligations.

This is an oversimplification of course, we will find rent contracts of more than 50 pages in some countries, quite elaborate to cover different situations. 

On the other hand, if someone is buying an apartment, they would look for purchase price, installments, handover date, ownership transfer details, what happens if one party backs out, and identification of property and premises will apply of course. They would not in this case look for insurance or maintenance, because that becomes their own responsibility once they buy.

Let’s take another example – even more simple this time. Pest control services, what would anyone look for - charges, date of service, how long would the effect remain, quality of chemicals used, what happens if things don’t work out.

Pro Tip

First look at what’s being provided (as an example, in a service contract - which services), then look at the payment terms linking it to that (advance or arrears, trigger of invoicing/payment), and subsequently the indemnity and liability clauses (since they provide for what happens when things go wrong). To review the clauses that determine ‘What ifs’ before understanding ‘What’ and ‘How’ would not be a logical flow. If we don’t know what we are purchasing, how will we understand what we want as remedies.

Secondly, consider which side you are reviewing from. For example, if you are paying money, you would want to ensure that the trigger of the invoice does not happen before payment is due – for example, will the invoice be raised after you sign-off on the deliverable? Is the timeline for payment long enough, for example 60 days from the date of receipt of invoice, to avoid losing days? On the other hand, if you are the one getting money, you would need to ensure the client does not get forever to sign-off, and you put a timeline for deemed acceptance, and that the payment runs from the date of the invoice, and a shorter timeline like 15 or 30 days.

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