Five common contract clauses explained

Intellectual Property (IP) Clause

An intellectual property clause outlines who owns the intellectual property rights used or created under a contract, and establishes the terms of any license or assignment of these intellectual property rights between the parties. A well-drafted IP clause provides certainty for the parties and can help avoid disputes over ownership and use of intellectual property rights during, and after the term of a contract.

Indemnity Clause

An indemnification clause imposes an obligation on one party to cover certain losses, claims, or liabilities incurred by the other party in connection with a specific event. These events may include the negligence of the other party or a third-party claim arising from the other party’s actions, resulting in loss. This clause allocates risk between the parties and can have significant financial consequences if it is not appropriately negotiated.

Warranty Clause

A warranty clause is a promise of fact made from one party to the other party under a contract. This may include statements such as the goods or services provided under the contract will meet the agreed standards, or that a party has sufficient authority to enter into the contract. If a warranty is breached by a party, the other party may be entitled to certain remedies.

Limitation of Liability Clause

A limitation of liability clause limits the extent to which a party can be held financially responsible if something goes wrong under a contract. In many contracts, the parties agree for liability to be capped at a fixed amount, or the liability clause excludes recovery for certain types of losses such as indirect or consequential damages. Overlooking this clause can have significant financial implications if it does not reflect the intentions of the parties.

Force Majeure Clause

A force majeure clause absolves a party from liability if an unexpected event, beyond its control, prevents or delays it from performing its contractual obligations. Such events may include natural disasters, war or a pandemic. These clauses came under renewed scrutiny in light of the COVID-19 pandemic, as many businesses sought to rely on them to avoid being deemed to be in breach for a failure to perform.

Although these clauses may look ‘standard’, they can differ significantly between contracts and may have a negative impact on your business if they are they are not appropriately negotiated.

Our Corporate and Commercial team advises on drafting, reviewing and negotiating commercial contracts to ensure they reflect our clients’ intentions. If you would like any assistance with any commercial agreement, our team would be pleased to help.