Commercial Contracts: 5 Clauses You Need

A good contract is like good insurance: you hope you never need it, but if things go wrong, you're glad it's there. Many business owners sign contracts without reading them properly, or draft them themselves without legal knowledge. In this article, we discuss the five clauses that should not be missing from any commercial contract.

Why are good contracts important?

A contract is more than a formality. It is the foundation of your business relationship and determines what happens when things don't go as planned. A good contract:

• Creates clarity about rights and obligations
• Prevents misunderstandings and disputes
• Protects you against risks
• Provides certainty in case of disputes
• Strengthens your negotiating position

Knowing when you need a lawyer for your contracts is crucial. For important deals, a legal review is always wise.

Clause 1: Scope and deliverables

The first and most fundamental clause describes exactly what will be delivered. This may sound obvious, but many disputes arise from a lack of clarity on this point.

What should it include?

• Clear description: What will be delivered? Be as specific as possible.
• Delimitation: What is not included? Avoid discussions about "I expected that to be included".
• Acceptance criteria: When is the work considered approved?
• Change procedure: How will you handle adjustments during the project?

Practical example

A web agency is building a website. The contract states: "delivery of a website." The client also expects hosting, maintenance and SEO optimisation. The agency charges extra for this. The result: a conflict.

It would have been better to state: "Delivery of a WordPress website consisting of a homepage and 10 subpages, excluding hosting, maintenance and SEO. Hosting and maintenance are optional at an additional cost."

Clause 2: Price and payment

Money is often the source of conflict. A clear payment arrangement prevents many problems.

What should it include?

• Price: Fixed price, hourly rate or other basis
• What is included: VAT, travel expenses, materials
• Invoicing schedule: Upon delivery, periodically, at milestones
• Payment term: For example, 14 or 30 days
• Consequences of late payment: Interest, collection costs, suspension of work
• Price indexation: For long-term contracts

Tips

• Request a down payment for large projects
• Invoice periodically for long-term assignments
• Include a retention of title clause if you supply goods
• Refer to your general terms and conditions for detailed payment rules

Clause 3: Liability and indemnity

If something goes wrong, who is liable for the damage? This is one of the most negotiated clauses in commercial contracts.

What should it include?

• Limitation of liability: What is the maximum amount you can be held liable for?
• Exclusion of damages: Which types of damage are excluded (consequential loss, loss of profit)?
• Indemnity: Who is liable for third-party claims?
• Insurance obligation: What insurance policies must the parties have?

Common wording

"Total liability is limited to the amount paid out by the liability insurance, or - if no payment is made - to a maximum of the invoice amount for the assignment."

"Liability for indirect damage, including loss of profit, loss of savings and reputational damage, is excluded."

Please note

You cannot exclude liability for intent or deliberate recklessness. Excessive limitations can also be deemed unreasonable.

Clause 4: Duration and termination

Every contract has a beginning and an end. But how does it end? And what if you want to stop before the end date?

What should it include?

• Term: Fixed term, indefinite term, or until completion
• Renewal: Automatic renewal or not? For what period?
• Notice period: How far in advance must notice be given?
• Early termination: When are you allowed to terminate the contract early?
• Rescission: For which breaches can you rescind the contract immediately?
• Consequences of termination: What happens to ongoing work, payments, data?

Exit strategy

When entering into a contract, think about the end from the very beginning. How do you get out of it? This is crucial for key suppliers or clients.

Clause 5: Intellectual property

Who owns the result? For creative assignments, software development or R&D, this is essential.

What should it include?

• Ownership of IP: Is the intellectual property transferred to the client or does it remain with the contractor?
• Licence: What usage rights does the client receive?
• Source files: Does the client get access to source code, designs, etc.?
• Pre-existing IP: What about material that already existed before the assignment?
• Infringement: Who is liable if the delivered work infringes on third-party rights?

Two models

IP remains with the contractor: The contractor retains all rights and grants a licence to the client. This is common for standard software and templates.

IP is transferred to the client: All rights are transferred. The client becomes the full owner. This is common for bespoke work and custom development.

Read more in our article about protecting intellectual property.

Bonus: other important clauses

In addition to these five core clauses, there are other provisions that belong in many contracts:

Confidentiality

Protect confidential information you share with your contract partner. This is especially important for collaborations, negotiations and technical projects.

Force majeure

What happens if performance becomes impossible due to circumstances beyond your control? The Corona pandemic, natural disasters, war - arrange what happens in such cases.

Dispute resolution

Which court has jurisdiction? What law applies? Also consider mediation or arbitration as an alternative to court proceedings.

Assignment and subcontracting

Can your contract partner assign the contract to a third party? Can they outsource work to subcontractors?

Contract review checklist

Before you sign a contract, go through this checklist:

• Is it clear what will be delivered and what will not?
• Are the price and payment terms clear?
• Is liability limited to an acceptable extent?
• Can you exit the contract if necessary?
• Are the IP rights properly arranged?
• Are there any hidden obligations or risks?
• Do your general terms and conditions apply (and not the other party's)?

Conclusion

A good commercial contract protects you against risks and prevents disputes. Invest in clear, complete contracts - it will pay off if things go wrong.

Would you like to have a contract drafted or reviewed? At Helder Advocatuur, we help business owners with contract law every day. Feel free to contact us for a meeting without obligation.