Boilerplate Contract Provisions and How They Affect You (Part 1)

It may seem logical that in business contracts every term and provision would be unique to your particular agreement or situation. While that’s generally true, there are many provisions that appear over and over again and are sometimes automatically put in no matter the kind of contract or what it may encompass.

These are often called “boilerplate” provisions. They are routine, but do have specific legal meanings and impact. And although they are often routine, you also have a right to negotiate them to suit your needs.

Common Terms

Here are some of the more common boilerplate provisions, and a quick explanation of what they mean:

Time is of the essence (TIOTE): Certainly, in almost any contract, time plays an important factor. If you contract for someone to deliver your business goods, there is a reasonable expectation they will be delivered as soon as commercially possible. That said, a reasonable delay will not be grounds to allege a breach of an agreement.

But with a TIOTE clause, it means that prompt performance is especially important, and that a failure to immediately perform can be considered a material breach of the agreement.

Regardless of a TIOTE clause, most courts will look to the purpose of the agreement, and the circumstances surrounding it, to determine what a reasonable delay is and whether a delay will constitute a material breach of an agreement.

Force Majeure: This is often called an “act of God” clause, and it forgives performance under an agreement where such an act occurs. Obviously, the courts don’t actually look to see if God caused a delay—the term is more meant to imply circumstances that nobody can control or foresee. This can include hurricanes, riots, war, or serious health problems.

Some courts have refused to apply the provision where the event was foreseeable—for example, a blizzard in New York. However, others have allowed the provision under the same circumstances. It’s always best to define which events constitute a force majeure event and which may not.

Parties should also specify what happens in the event of a force majeure event. Is complete performance under the agreement excused? Do one or both parties need to consent to void the agreement? Is there a period where a party may get to fix damage that occurs after such an event?

Incorporation by Reference: Many business deals have multiple agreements. Instead of saying the same thing in three different documents, many contracts simply say an outside agreement is incorporated by reference.

You should be careful using this language because if you incorporate an outside document, that document’s terms may contradict the terms of the agreement you’re signing, thus causing a contradiction or ambiguity. Careful review to make sure all documents are harmonious is necessary before using such a clause.

Next week, we’ll take a look at some more boilerplate contractual provisions that are used often and how they affect your business.

Every word in your business agreements can make a big difference, and affect your business’ bottom line. Don’t leave success to chance. Contact Tampa business attorney David Toback to discuss your needs and review documents to make sure your business transactions go as planned, without problems.