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Hey there, I’m Danielle. Welcome to episode 41 of Simplifying Legal for Small Business Owners. Today, I’m talking about how to handle contract revisions.
Disclaimer: As always, before we get into today’s topic, a quick disclaimer. This podcast is meant to provide you with legal information only. It’s not legal advice and does not create any type of attorney-client relationship between us. Please don’t take any action without consulting your lawyer first.
There are at least two sides in any contract. First, there’s the party who is issuing the contract. Then, there’s the party who is reviewing and, hopefully, signing the agreement.
I want to cover this from both sides, so I am going to refer to these two roles as the issuer and the signer. This might not be representative of every contractual relationship you’ll encounter, but, for many small business owners, the issuer and signer roles will likely be a common scenario when it comes to their contracts.
Ideally, a contract would be mutually beneficial and contain all of the terms needed for both parties to feel protected. However, this isn’t always the case. The signer might see things that don’t reflect their understanding of the relationship or it might be a topic that wasn’t initially discussed. Because it’s really unlikely that your initial conversation will cover every aspect of the relationship and the contract will probably have some new content.
Now I want to focus on tips for handling revisions for each side of the agreement. After we review these, I’ll shift a bit and talk about some of the most commonly revised terms.
Tips for Handling Contract Revisions for the Signer
Let’s start with tips for the signer. Keep in mind that when I talk about revisions, these are a type of negotiation. Some of the changes may be extremely simple and accepted with no further discussion. Others may turn into a more lengthy negotiation with a lot of back and forth between the issuer and the signer.
Review the Agreement
Step one is fairly simple, when you receive the agreement, carefully review it. Do the terms match what was discussed? If not, make notes about what differs.
Are there any terms that weren’t previously discussed that don’t work for you? If so, what does work for you? Start to consider those options.
Depending on your business and the complexity of the agreement, you may skip this step entirely and simply send the agreement to your lawyer for review.
Ask Clarifying Questions When Needed
Assuming that you are reviewing the agreement yourself, the next step is to ask clarifying questions.
Depending on the type of relationship you are entering, it’s quite likely that you’ve already discussed and negotiated a number of points, like the planned deliverables, timing, and compensation.
But, as you’re reviewing, if there are terms that don’t make sense or haven’t been discussed, definitely ask questions. Sometimes, it may be a minor misunderstanding and the issuer can make a simple change and send it back.
Additionally, you can get more information about why a term was included that can help you determine your approach to a potential revision.
If there is a term that doesn’t seem applicable to the relationship, ask why they’ve included it. This can help you plan your approach when it comes to the revisions.
Talk to Your Lawyer When Needed
Once you’ve reviewed the agreement and have answers to any clarifying questions, if there are things that you aren’t sure about, this is a good time to contact your lawyer. Your lawyer should be able to assist you with understanding any terms, as well as give you language for the revisions.
Consider the Worst-Case Scenarios
Next, consider the worst-case scenario. As an enneagram 6 lawyer, I’m very skilled at coming up with worst-case scenarios, but I know a lot of people prefer not to think about them.
However, when you are dealing with a contract, consider what happens if the contract doesn’t go as planned. What are the things that could potentially go wrong and does the agreement offer you the protection you need?
For example, does the agreement give you the right to terminate if the relationship isn’t working? What happens for refunds or remaining payments in the event of a termination? Make sure you fully understand what that can mean for you and your business before you sign.
Now that you’ve done a lot of this background work, it’s time to make revisions. If you aren’t sure how to phrase a change, this is ideally when to talk to your lawyer. I regularly review contracts for clients and make all of the revisions for them, which they then send back to the issuer.
I also know a lot of people who rely on templates to help them with revisions for language. For example, if you are an influencer making changes to a sponsored content agreement, you could potentially use the Businessese Sponsored Content agreement for sample language for the changes that you want to make.
Submit Requested Changes to the Issuer
The last step is to send the changes to the other person. I’m often asked what that should look like.
The format of this may vary depending upon how you received the contract. Often, you’ll do it as tracked changes in Word or Suggestions in a Google Doc. I strongly recommend this approach since it is typically easiest for the issuer to review. Plus, the inherent functionality of Word or a Doc will make it easy to accept the changes or additional revisions.
The format might also be a marked-up PDF or a list of bullets in an email. But, please don’t assume that just because someone sent you an agreement for an electronic signature that you can’t make changes. I have had people come to me with that and assume that once it’s sent, they can’t make changes. This just isn’t the case. Most e-signature services allow the signer to download the agreement easily and then you can make changes to the document as you normally would.
After you submit the changes to the issuer, it’s time to wait for the issuer’s response. Then, you can determine what needs to be negotiated.
Tips for Handling Contract Revisions for the Issuer
Now it’s time to look at things from the side of the issuer. Let’s assume that the signer we’ve been discussing is reviewing your contract and they’ve just sent revisions to you. How should you handle them?
First and most important, don’t panic if you receive a request to make a change. In many types of businesses, it is extremely common to receive requests to make changes to an agreement. Often the changes are relatively simple and easily resolved.
Review the Changes
The next step is, of course, to review the proposed changes. Even if you see a lot of revisions, they might not be that significant. Only after you’ve read over everything can you evaluate what’s next.
Consult with Your Lawyer
If you aren’t sure what a revision means or how it might impact your business, please talk to your lawyer.
Accept, Decline, or Negotiate the Changes
After you’ve had an opportunity to review the changes, decide (along with your lawyer, if applicable) how to respond to your client. You can:
- Accept the changes as the client submitted them to you;
- Decline them in their entirety; or,
- Negotiate the changes by presenting a revision to their revision.
For example: Let’s say your agreement stated that all invoices are due upon receipt. The client said that they need more time to process and changed it to 90 days. If that is far longer than you will accept, you can then send back an alternative, such as 30 days. If they don’t accept it, then you can make a decision about how to handle.
Decide How to Proceed
A lot of times, revisions are fairly easy to handle. It might go back and forth between the issuer and signer a couple of times, but then everything is resolved. Occasionally, though, you may reach an impasse and both sides are unwilling to accept the other’s proposed terms.
Then, it will be up to you to decide whether you want to decline the relationship. You may either need to accept the request for revisions or go back and try to come up with other alternative terms.
One tip – if you can’t come to an agreement, make sure you leave things on a positive note. You never know what the future might hold and just because this agreement didn’t work, it might be a possibility for the future.
Commonly Requested Revisions
Now that you know how to approach revisions from both sides, let’s talk about some of the most common terms that may be revised by a signer.
First is the term, which is when the agreement is in effect. Occasionally, the signer may request a different effective date for when the agreement starts or different end date. For example, if you typically sign annual agreements, if someone only wants to commit to 6 months, is a six-month term acceptable to you?
Representations & Warranties
Next are representations and warranties, which are statements that are true at the time the agreement is being signed. The signer may want to add representations and warranties from you. In that case, review it carefully to ensure that it’s applicable and reasonable.
Or the signer may ask you to strike representations and warranties that you’ve requested from them. Consider the content of the requested deletion to determine how to move forward.
Next is compensation. Signers will occasionally request changes to compensation provisions, such as billing dates or the amount of time they have to pay an invoice.
Remember, larger companies often take longer to pay. If you normally state that payments are due within 3 days, you may receive a request to lengthen the time.
Use of Subcontractors
Next, if you’ve stated that you may use subcontractors, some clients may request that you perform the services personally. Or, they may request to approve the usage of subcontractors before you work with them.
Some clients may also ask that you have certain agreements in place with your subcontractors. This is really common if you have signed any type of confidentiality agreement and they want to ensure that the subcontractor will keep the information confidential too.
Next is the termination provision, which governs how to end the agreement early. This is often negotiated. You may want the client to give you three months’ notice. They may want to be able to terminate immediately. This is something that often comes up when signers are considering the worst-case scenarios. It’s a really important clause, so make sure you consider it carefully.
Next, confidentiality provisions are also heavily negotiated. Look carefully at the changes the signer is proposing. Often, it may impact the duration of the clause or the type of information considered confidential. Sometimes it will be about whether or not you can share information with your team or subcontractors.
Ownership of Services
Next is ownership of services. Depending on the type of business you are in, this is a potentially hot topic. If you want more information, I recommend that you check out Episode 13 on Content Ownership in Contracts or Episode 30 on Copyrights 101.
If the issuer has stated that it will retain ownership of something, the client may revise it to state that they want to own the content being created. This may require some negotiation.
This is sometimes where the parties can hit an impasse, so if there is content creation happening, I recommend including this in the discussion prior to the contract phase.
Personally, I had a call with a social media manager at one point and I thought it looked like a good fit and she sent her terms and she would own any content created. This was not going to work for me since it was to be based solely on my ideas, my images, and my branded templates. So, when we were not able to agree that I would remain the owner, I decided that, while I thought they do great work, it wasn’t the best fit for my needs. I then found someone who understood and agreed to the terms I needed.
Next is the disclaimer. Some client agreements will include a disclaimer that states that you can’t guarantee results. A signer may request the removal or modification of this section, depending on the services offered.
This is typically related to third-party claims and holding one another harmless in certain circumstances. It is very heavily negotiated in many industries.
Choice of Law & Venue
Next is the controlling law and venue for disputes. Normally, if you are drafting the agreement, you’ll include the state where your business is located. The signer may request that you change it to their location. Consider whether you want to be in that jurisdiction if there is litigation or other proceedings and which state’s law you want to apply.
Limitation of Liability
Next is the limitation of liability, which will typically limit the issuer’s liability in the circumstances described in the clause. This is often an area with revisions since this typically offers the issuer more protection. A signer might request that you make it mutual or remove it completely.
Alternative Dispute Resolution
Next is alternative dispute resolution, like mediation or arbitration provisions. This usually means that if there is a dispute related to the agreement that would traditionally be handled in court, it would instead be subject to the alternative dispute resolution provision. Which may be mediation, then arbitration. Or it may be arbitration only.
If you don’t have a mediation or arbitration provision in your agreement, some clients may request it. This means that, instead of court, you would handle disputes in the method indicated.
If you do have this clause, from time to time, a signer might request to have it removed.
Non-Competes and Non-Solicits
Last is non-competes and non-solicitation clauses. This can often depend on the type of relationship between the parties and the services being provided.
When applicable, a client may request to add a non-compete so an issuer doesn’t work with their competitors during the term of the agreement. Additionally, they may ask to include a non-solicitation provision so you cannot solicit their clients.
Or, if you’re hiring, for example, and you include this type of provision, the signer may try to negotiate it.
Please check your state laws to determine whether or not this type of clause is allowed in your jurisdiction. Many states are putting restrictions on these clauses, so it’s important to know and can also impact the type of revisions requested.
This wraps up how to handle contract revisions. Now let’s talk about today’s action steps.
- If you are signing an agreement, review it carefully, talk to your lawyer, if needed, and send back revisions to the issuer.
- If you’re the issuer and a signer sends you revisions, remember, the first step is to not panic. Read over their proposed changes and then you can decide your strategy. If you don’t agree with a proposed change, you can either reject or make additional revisions.
- Last, as always, if you aren’t sure how to approach certain revisions, please contact your lawyer. I regularly work with clients on contract revisions through my law firm, Liss Legal. If you’d like to learn more, visit LissLegal.com.
Thanks for joining me for today’s episode. If you are listening close to the time the episode goes live, we’ll be off for the next two weeks during the holiday season. I’ll be back with new episodes in 2022.
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