We know that many business deals are concluded with a handshake on the golf course or over some drinks after work. Verbal agreements are often also made with a friend or friend of a friend. But do they work?
In our experience, they work well until they don’t anymore and then things can turn sour very quickly leading to the disintegration of relationships, agreements, transactions and even complete businesses.
You may find yourself facing the other party who has “memory loss” or being asked to comply with certain conditions that have never been agreed to. The first thing a lawyer will ask you when you explain your problem is: “Did you get it in writing?”.
It is important to have your agreements in writing to protect your interests and enforce your rights. Also, both parties will then understand in clear terms what is expected of them and, more importantly, what is agreed to and what is not. It will also set out the consequences, process and possible recourse if a party does not fulfil any of its agreed upon duties or if you want to terminate the agreement for some reason.
Verbal agreements are always a risk. You might feel confident that the person you are entering into an agreement with is trustworthy and the relationship can withstand any obstacles, but people change and memories fade. If you try to enforce a verbal agreement in court, there will always be two versions of the story with one person’s word against the other’s. It will be difficult to convince a judge or magistrate which version is correct if you have no written evidence to show for it and you may spend years litigating on a he-said, she-said basis. The cost implications of this are significant.
There are many other reasons to have a written contract such as ensuring that all the terms of the agreement are documented. If a disagreement arises, there is a document in place that the parties can revert to and ensure the relationship gets back on track. A good written contract can save you money and strengthen a business relationship by helping to avoid disagreement or litigation altogether.
To ensure that you are fully protected, your contract should be as detailed as possible. Each party’s rights and obligations must be set out as well as costs, timelines, outcomes, etc. Concrete terms are very important, and the agreement needs to be clear on what the consequences of non-compliance will be and how the contract can be terminated.
By discussing and agreeing to all the terms of the agreement, the parties will also identify and dispel any disagreement or problem areas early in the negotiation process. If you have a verbal agreement, this may only come to light when it’s too late because you have entered into the relationship with promises and no consequences.
It should be borne in mind that a written agreement should not just be a one-pager with a few terms. Sometimes that one-pager, even though it is in writing, causes more confusion and trouble than not having an agreement in place at all. Some agreements will be more detailed than others as they need to contain certain terms that the ordinary person on the street may not know to include. It is also important to note that certain contracts must, in accordance with law, be in writing, such as if you buy or sell immoveable property.
The benefits of having a detailed, unambiguous and well-written contract in place are enormous. We suggest making it your basic business practice to conclude written agreements with all clients, suppliers, contractors, partners, shareholders and investors. If you intend to enter into an agreement and you are unsure as to what it should contain, don’t hesitate to contact us for guidance and assistance.