What’s the most important clause in a contract?

If you’re a buyer of services, the most important clause in a contract is termination for convenience – the ability to get out for free, no questions asked, no need to discuss or justify or explain why it’s not working for you. No need to pull together any data to justify a claim of breach, and no need to give the supplier a chance to remedy the problem.

A client recently learned this the hard way. His business had signed up for a leasing agreement for office equipment. It was one of those contracts where the legal terms are printed in such small letters that only the eagle-eyed can read them. The initial term of the contract was five years (!). That was bad enough, but terms also provided that, if the contract wasn’t terminated before the end of the initial five years, it renewed for another five. Ouch!

Moral: always make sure you can exit easily. It not only protects you from mistakes and from duff suppliers, it also preserves your negotiating power. No supplier likes to lose revenue, and it’s the ability to take your revenue away that makes the supplier respect you.

2 April 2024