Why you should have a lawyer review a contract before you sign

Negotiate before signing, not after

Once signed, a contract is binding on the parties, and the options for changing an unfavourable clause are limited. In business-to-business relationships, courts start from the assumption that each party read and accepted what it signed. The best time to correct an imbalance is therefore before signing, while there is still room to negotiate.

A legal review does not necessarily mean a longer contract. Often it means a few clarified clauses, a properly set liability cap or a deadline added where one was missing.

The cost of a timely review is usually small compared with the cost of a dispute or of a penalty paid under a clause that was not understood. A conversation with a lawyer also helps you know exactly what you are committing to and what you can ask of the other party.

Clauses that deserve special attention

Every contract is different, but certain clauses come up often and can have significant effects:

• penalty clauses: penalties for delay or non-performance, how they are calculated and whether there is a cap;
• termination: when the contract can be terminated, whether prior notice is required and whether a party can terminate without going to court;
• jurisdiction and governing law: where a dispute would be heard and under which law;
• security: bank guarantees, promissory notes and personal guarantees from the director;
• liability: which losses can be claimed, whether there are caps and which situations are excluded;
• payment terms, acceptance of works and the conditions under which the price may change.

Personal guarantees and liability: where surprises arise

One of the most frequent problems is a personal guarantee given by a director or shareholder for the company's obligations. In that case, liability is no longer limited to the company's assets and may extend to the guarantor's personal property. It is worth understanding exactly what is being signed and up to what amount.

Equally important is how liability for damages is set. A clause requiring you to cover any loss without limit may far exceed the value of the contract. A reasonable limitation of liability can sometimes be negotiated.

Contracts with foreign partners

Contracts with partners from other countries raise additional questions. Which law applies? Where would a dispute be heard? Which language version prevails? If the partner proposes its own courts and its own law, any dispute may become costly and difficult to pursue.

Arbitration clauses, delivery terms and transfer of risk, the payment currency and exchange-rate risk, and the practical ability to enforce a judgment in the partner's country are also worth reviewing. The English version of a contract must be understood just as well as a Romanian one.

Data protection (GDPR) in contracts

Where one party processes personal data on behalf of the other, for example an IT, accounting or payroll provider, Regulation (EU) 2016/679 requires a written data processing agreement with mandatory minimum content. The contract should specify which data are processed, for what purpose, which security measures apply and what happens to the data at the end.

Without these provisions, both parties may be exposed to sanctions and to disputes over liability in the event of a security incident.

How a review works

Typically, the lawyer receives the draft contract and information about the transaction, identifies the risks, proposes alternative wording and, if you wish, takes part in the negotiation. Formal points are checked too: whether the person signing for the other party is authorised to do so, whether all annexes referred to in the contract are attached, and whether the chosen form, such as an electronic signature, suits the type of contract.

The information in this article is general, and each contract must be assessed in its specific context. For an efficient review, it helps to prepare:

• the draft contract and all annexes, in editable form if possible;
• a short description of the transaction and your objectives;
• relevant correspondence with the other party and any earlier offers;
• the other party's identification details, for checks in public registers;
• the date by which the contract must be signed.

This article is for information only and does not constitute legal advice. For an analysis of your specific situation, contact a lawyer.