Ever lost a deal or faced legal action because of unclear contract language? You're not alone. Clear contract language is essential for dodging those pesky lawsuits and bad deals.
Many believe that complex legalese adds a layer of seriousness to contracts, but it often creates more problems than it solves.
The essence of our argument here is simple: clear contract language is essential for managing risk.
Let’s dive into why straightforward wording is critical, how to achieve it, and the risk management benefits it brings along.
What are plain language contracts?
Plain language contracts are legal agreements written in straightforward, easily understandable language. They aim to be clear and accessible while still covering all the necessary legal bases.
The objective is not to dilute the legal efficacy of the document, but to enhance its comprehensibility. By doing so, you eliminate the ambiguity that often leads to disputes or misinterpretations.
Opting for clear contract language is a calculated risk management move; these straightforward contracts are way less likely to land you in a dispute, saving you both time and money in the long run.
Also Read: 6 tips to effectively write business contract agreements
The pitfalls of complex or ambiguous contract language
Imagine you're assembling a piece of furniture, but the instruction manual is written in a combination of archaic English and scientific jargon.
That's what it can feel like when you're dealing with a contract filled with legalese and complex contract terms.
Unlike IKEA furniture, a poorly constructed contract can lead to something far worse than a wobbly table; it can put your entire business relationship on shaky ground.
Newbies to the legal world sometimes think a contract should sound like it was written by Shakespeare. But remember, you're not aiming for a literary prize; you want clear, mutual understanding.
Here are some of the reasons overcomplicated contract language fails:
#1 Increased risk of misinterpretation
When you stuff a contract full of complex language, you're practically begging for people to misunderstand the terms. This is a fast track to conflicts and, let's face it, nobody wants to be in that boat.
#2 Sky-high litigation costs
If either party believes they've been wronged, ambiguous language makes it more likely that you'll end up in court. That means shelling out big bucks on legal fees, which is the last thing anyone wants.
#3 Time drain
Just try working your way through a contract filled with convoluted clauses. You'll need a decoder and a strong cup of coffee just to get started. All this extra effort to understand or explain the terms is time that could be better spent elsewhere.
#4 Relationship strain
A confusing contract can sow distrust between parties. If one side feels like the other is trying to pull a fast one with tricky language, you can bet that the working relationship is going to suffer.
#5 Enforcement issues
Ambiguous terms make it hard to enforce the contract. Say you need to go to court to get the other party to comply—good luck getting a judge to interpret the contract in your favor if it reads like a riddle.
The irony: Complexity increases risk
You'd think making a contract ultra-detailed would cover all your bases, right? But sometimes, trying to make things "comprehensive" can be your Achilles' heel.
More words can lead to more ambiguity, and that opens the floodgates for disputes, misinterpretations, and—ironically—increased risk. In your quest to button up every detail, you might just be adding loopholes you never saw coming.
So, next time you're tempted to throw in another sub-clause or complex term, remember: Clarity trumps complexity. Your aim should be a contract that even a high schooler with no context can understand, not just a legal expert.
Also Read: Effective Contract Risk Management: Top Tips & Strategies
The value of clear contract language
Honestly, you can't overstate the importance of clear contract language when it comes to safeguarding your interests. When you prioritize simplicity over complexity, you’re not only saving yourself from headaches but also safeguarding your company’s interests in the most effective way.
Here’s why clarity is king:
#1 Minimal ambiguity = low risk
The primary role of a contract is to define expectations and set boundaries. Clear language ensures that all parties understand their obligations and rights, thereby minimizing the scope of misinterpretations. The clearer the contract, the less room there is for "creative" interpretations that can land you in hot water.
#2 Easier enforcement and lower litigation costs
When push comes to shove, a well-crafted, straightforward contract is easier to enforce. This can potentially save thousands of dollars in legal fees and countless hours deciphering what exactly was meant by "hereunto" or "forthwith."
#3 Fosters better relationships
Transparency is key in any relationship, especially business relationships. A contract that everyone can understand and agree to without needing a Rosetta Stone for legalese fosters a sense of trust and cooperation among parties.
Examples of clear contract language
The simplified clauses get straight to the point. They’re easier to understand and leaves less room for interpretation. Plus, it's less intimidating for parties who may not be fluent in legalese, making the agreement more accessible and less prone to misunderstandings.
That said, clarity isn’t about dumbing down contracts; it's about enhancing comprehension and mitigating risk.
The role of plain language in contract risk management
Let's dig into some less-discussed facets of why cutting out legalese could be your secret weapon in managing contract risk effectively.
#1 Mapping contingencies like a pro
Clear language allows you to lay down what happens if things go south—think delays, cancellations, or, God forbid, bankruptcy. When you explicitly map out contingency plans, you're eliminating confusion and lessening the risk of contract disputes about next steps during unexpected situations.
#2 Keeping third parties in check
Let's say you have a subcontractor or a supplier tied into your contract. How they perform can be a wild card that adds risk.
Clear language in your contract about the responsibilities and expectations of third parties clarifies what you expect from them and gives you a sturdy leg to stand on should you need to enforce compliance.
#3 Exit strategies: Breaking up is hard to do
Every relationship has its lifespan—even in business. Clear contract language can serve as a pre-nuptial of sorts by clearly outlining the exit strategies or termination clauses.
This ensures that if things come to an end, the impact on both parties is minimized and controlled, thereby reducing legal and financial risks.
So, the lesson here isn't just about avoiding the "thou shalts" and "hereafters." It's about making sure that every phrase and clause in your contract is pulling its weight in protecting you from risk.
Also Read: Best Practices for Commercial Contract Risk Management
10 tips for crafting contracts with clear language
“Avoid unnecessary complexity and shoot for short sentences. Always ask yourself if what you wrote down is clear – could a judge or jury understand the section if there was ever litigation? If not, rework it. For example, think about this statement, ‘This Agreement will terminate on August 31, 2021.’ Does this mean that it terminates when the day starts? When the day ends? And when does the day end? At the end of the business day, at midnight, and in what time zone? The better sentence is ‘This Agreement will terminate on August 31, 2021, at 11:59 p.m. Central Time.’ Be precise and concise!”
~ Sterling Miller, CEO, Hilgers Graben
Ten Things: Making Contracts Easier to Sign
#1 Cut the legalese
Fancy words like "indemnification" or "in perpetuity" can make a contract sound impressive, but they're not doing you any favors. Switch them out for simpler terms like "protection against loss" or "forever." No one's handing out awards for "Most Arcane Legal Document."
#2 Be direct with active voice
Writing "The vendor shall deliver the goods" is much clearer than "The goods shall be delivered by the vendor." Active voice gets straight to the point and eliminates any doubts about who's doing what.
#3 Listify wherever you can
For instance, if you're outlining terms and conditions, don't write a block of text. Use bullet points or numbers:
- Payment terms
- Deliverables
- Termination conditions
#4 Say hello to personal pronouns
Swap out "The party of the first part" for "we" and "the party of the second part" for "you." For example, "We agree to provide you with X, and you agree to pay us by Y date."
#5 Give doublets the boot
Instead of saying "agree and covenant," just pick one. "Agree" should suffice. The message remains the same, but the text is less cluttered.
#6 Master the art of 'shall'
Reserve "shall" for duties and obligations. For example, "The supplier shall deliver the product by date X," makes it clear that it's a requirement, not an option.
Don’t use "shall" for actions that are optional or conditional.
If you say, "The supplier shall deliver the product, if they find it convenient," that's a recipe for ambiguity. "Shall" implies an obligation, but "if they find it convenient" completely undermines that obligation. This can create a contractual grey area that could lead to misunderstandings or even legal disputes down the line.
In such scenarios where an action, opt for words like "may," "can," or "will consider."
For example, you could say, "The supplier may deliver the product, if they find it convenient." This wording sets the correct expectation that the action is permissible but not mandatory.
#7 Say sayonara to legalese
Ditch words like "wherefore" and "hereinafter." If you can't imagine saying it over a coffee, don't put it in your contract.
#8 Nix the 'because it's tradition' excuse
So what if your organization has been using the same template since the dark ages? If it's full of outdated phrasing, it's time for a refresh.
#9 Why not just say it?
Before hitting that print button, read each clause and ask, "Is this the simplest way to say it?" If the answer's no, back to the editing board you go.
#10 Never forget your audience
Whether it's a newbie intern or a seasoned executive, the contract should be readable for all. Use a tone and language that are universally understandable.
Also Read: The Perfect Contract Risk Assessment Checklist
Bonus hacks to ensure clarity in contracts
#1 Consider the local laws and regulations
It's not just what you say but how you say it. Some jurisdictions have specific requirements for contract language.
#2 Conduct the blue-pencil test
Take a physical print of the contract and slash through every unnecessary word or phrase. You'll be surprised how much fluff you can eliminate.
#3 Consult multiple departments
Get input from legal, finance, and the team that will actually be executing what's in the contract. Diverse viewpoints will help you cover all your bases.
“Talk to your business partners about what provisions cause them the most friction with customers, try to remove superfluous and redundant language, make your contracts shorter and easier to read and understand.”
~ Sterling Miller, CEO, Hilgers Graben
Ten Things: Making Legal the Department of Yes
#4 Be consistent
Use the same terms throughout the contract. If you start with "Licensor" and "Licensee," don't switch to "Party A" and "Party B" halfway through.
#5 Explain technical terms
If you absolutely have to use jargon or industry-specific terms, include a definitions section or a footnote to explain what you mean.
Case study: A win-win scenario in clear language contracts
The stories are from Joseph Kimble's book "Writing for Dollars, Writing to Please: The Case for Plain Language in Business, Government, and Law."
Cleveland Clinic
In 2008, the Cleveland Clinic took a bold step to simplify their billing statements. The revamp made the bills far easier to comprehend for the everyday patient. What unfolded? A marked rise in on-time payments and an additional $1 million each month in recovered revenue. It’s like they turned a key and money started rolling in, mainly because people now knew what they were actually paying for.
Sabre Travel
Sabre, a company offering computerized flight information, revamped their customer guidelines for ease of understanding. As a result, calls to their help desk plummeted by an astounding 70%. That translates into annual savings exceeding $2.4 million.
Key takeaways
- Both companies saved a bunch just by clarifying their language. This isn't a product or service shift, it's a communication shift
- Fewer calls to customer service or dunning late payments equals more free time. That's hours that could be used for other vital business operations
- Plain language isn't just a win for the business, but also for the customer. Clearer dealings mean happier customers, who then are more likely to be repeat customers
Also Read: Contract Security: Hacks and tips for safeguarding your contracts
How to strike the right balance between clarity and legality
The goal is simple: draft contracts that are as easy to understand as your favorite book but also legally airtight. Yeah, it's a balancing act—a tightrope walk, if you will. Here's how to not fall off.
#1 Slow your roll; patience is key
Let's face it, legal jargon has been around for ages and isn't going away overnight. So, while you might be itching to get rid of all the complex terms, remember that speed kills. Take your time to weed out the unnecessary bits, but make sure the contract remains solid.
#2 Know your stuff
Before you get started, immerse yourself in the specifics of what the contract is actually about. You're not going to use the same language for a software contract as you would for, let's say, a catering service. Tailor your contract to the situation to make sure you're not missing any crucial points.
#3 It's not a word count contest
Everyone loves the idea of a one-page contract, but let's not get carried away. It's not about how short you can make the contract; it's about how clear and comprehensive you can make it. Keep it as brief as possible, but don't cut corners.
#4 Dig in for the long haul
Shifting to plain language contracts is no walk in the park. You're going to face some pushback, maybe even from your own team. So brace yourself for the resistance and keep pushing forward. The effort you put in now will pay off big time in the long run.
Also Read: Enabling Business-Legal Collaboration: Advice from 7 GCs
Embrace the straightforward path to contract risk management
Complex contracts are a ticking time bomb for misunderstandings and legal woes. You need contract clarity, not just to make life easier, but to actively reduce risk.
Feeling like this could be a tedious process? Switch to SpotDraft.
Not only does it make contract drafting and editing a breeze, but it also offers seamless integration with Microsoft Word. You can create, edit, and finalize contracts right within Word, then save and manage them all on SpotDraft. It’s like having your cake and eating it too.
So why keep wrestling with confusing legalese? Make your life easier and your contracts better. Request a demo with SpotDraft today!
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