The internet is awash with template agreements of the free and the not-so-free variety. Even within law firms, there is likely to be a multitude of template agreements to choose from.
An experienced lawyer will easily pick out the better template to use, but what if you’re a junior lawyer or a business person facing the same choice?
Here are our 6 tips for picking a template for your business agreement…and a plug for engaging an experienced lawyer.
1. Does your template generally contain the terms that are customary or desirable for your deal?
Agreement titles can be deceptive:
- Agreements may have different names but contain essentially the same terms. For example, an Investor Rights Agreement in the United States may be called a Shareholders Agreement in the United Kingdom, Australia or Singapore.
- Agreements may have the same name but their content may vary. Sticking with our Shareholders Agreement example, some templates may rely on the joint venture company’s constitution to contain key terms which other templates cover.
Of the two, the second one may lead to more dire consequences, although the first may cause confusion and frustration between the parties.
Perhaps more importantly, may your deal be structured in a better way with a different agreement? A narrow or under-thought focus on a particular type of arrangement may blind you to better ways of achieving your goals and protecting your business and relationships.
2. Does your template give you prompts for options or alternatives to consider?
A good template is often a long template because it is the repository of an accumulation of wisdom from many deals past.
Picking a fuller template over a slim one will prompt you to consider alternatives and options that may be helpful, even crucial, for your deal. You should carefully consider if terms are material to your deal rather than missing out on material terms by using a simplified agreement.
However, you’ll need time and patience to do this properly. Using a fuller template and then giving up or glazing over half-way may leave you with an inconsistent and incomprehensible document.
3. Is it consistent and accessible?
Which leads us to our third tip – the agreement you send to the other side should be a polished one. It helps if the template you started out with was itself of a high quality, although high quality templates can be customised into mediocrity or worse.
What’s the worst that could happen with a low quality agreement?
If your agreement is inconsistent:
- A court that is asked to interpret it may do so in ways that are against your interests and sometimes in ways that none of the parties intended,
- Your negotiations may be confused and delayed by a focus on points that aren’t actually material to either party but cause concern or offence.
If your agreement is inaccessible:
- The other party may have difficulty understanding your proposal and that may lead to delayed negotiations, increased suspicion or a reluctance to sign the deal,
- You may have difficulty understanding and defending your proposal too, which is also a recipe for potential enforcement of the agreement in ways that are against your interests.
4. Has it been drafted with your interests in mind? Is it a document you want to start with as a first draft?
This tip is for the “googlers” out there. There are many agreements drafted by top-tier law firms which are available from a casual “google” search, including as a result of companies disclosing their arrangements in compliance with their listing obligations.
These agreements are powerful tools in experienced hands and a potential ‘own goal’ in inexperienced ones. Here’s why:
- These agreements are drafted with someone else’s interests in mind. These interests may be different to or the complete opposite of your interests,
- These agreements likely represent a negotiated position. Each may have given up something in return for something else in a way that you would not accept for your deal if you were prompted to think about it.
Even if you were lucky, and chanced upon an agreement that was drafted in your favour, the template may be so unreasonable, you may prolong the negotiation process by causing unnecessary concern, suspicion and offence.
In short, unless they are customised with sound and experienced judgement, these used templates are unlikely to be where you want to start off your negotiations. Using these templates, you run the risk of being ‘out-lawyered’ by the top-tier lawyers from deals past.
5. What will you do if the other party resists your chosen provisions?
Do you have a deep understanding of the agreement to be able to defend your position if amendments are requested?
Are you able to navigate your way through negotiations to take into account the other party’s objections while protecting your position?
Will you be ‘out-lawyered’ because you can’t defend your own drafting?
Choose a template of which you have a deep understanding.
6. Is it from an experienced lawyer practising in the jurisdiction relevant to your agreement?
Technical details matter and they differ from one jurisdiction to another.
Using a template from another jurisdiction may prompt you to consider options and alternatives which are useful. However, such templates require careful customisation. You should ensure that your understanding of the commercial deal still holds in light of differences in ‘background rules’.
Closing thoughts
Choosing and customising a template for your business agreement is not easy – it requires judgement and experience. Sophisticated business people doing deals that matter prefer to engage lawyerly assistance.
It isn’t just about the template. It is about getting the right deal done within a reasonable timeframe, on reasonable terms and avoiding delays and disputes later.
Those who decide to go ‘un-lawyered’ at first might also consider what they might do if things don’t go to plan. If you’re in the middle of negotiations and you’re no longer feeling comfortable with the agreement you’ve chosen, it seems to us you have 3 options:
- Walk away. Perhaps the deal and the relationship aren’t worth signing a bad agreement. Or perhaps you have an option of a ‘cooling off’ period after which you may start afresh.
- Call a lawyer. If you haven’t already got a lawyer helping you, you might bring one in at this stage. Do remember though that:
- Your lawyer will need a good briefing from you and time to get up to speed to help you meaningfully. Using your lawyer’s template may help them help you better.
- Lawyers vary in experience, expertise and temperament. You’re in a better position to parachute the appropriate lawyer in if you’ve done your homework and, even better, if you’ve invested in a relationship with a trusted adviser.
- Most advisers are less likely to answer your call if it is the third time you’re seeking free advice with hints of work to come.
- Sign the deal and hope for the best.
Whats others say
Here are 3 articles written by others, highlighting the potential risks of using template agreements and things to consider before using them:
- The Dangers of Using Free Contract Forms, by The Balance, a personal finance website launched by About.com
- Three Things To Consider Before Using Online Legal Templates, by the Forbes Legal Council
- Don’t buy legal documents online without reading this story, by Market Watch, a financial information website owned by Dow Jones & Company
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