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10 Common Contract Clauses and What They Mean

Have you ever signed a contract without fully understanding it? Does all the legalese begin running together? Better yet, have you ever signed a contract without even reading it?

Lease Agreement

Well if your answer is yes, you are not alone; I am sure most of us are guilty of doing this at some point.

Most people come into contact with some type of contract on a regular basis.  It could be a contract with your employer, your landlord, a mortgage company, a business partner, when you’re downloading software on your computer or applying for credit. Whether we like it or not contracts are a vital component of our personal and business lives so understanding what you are signing is critical.

The following is a list of a few common contract clauses and their meaning; hopefully, the next time you see these clauses in a contract you will have a better understanding of what they mean.

  1. Time is of the Essence – This type of clause places a requirement and emphasis on the fact that the parties of the contract must complete their obligation under the contract on time. If either party fails to perform timely it is considered a material breach of the contract.


  1. Indemnification – Generally, protects one of the parties in a contract from liability; where the other party agrees, to cover the costs and defend the protected party from liability for agreed upon claims. An indemnification clause, allocates the risks in the contract.


  1. Limitations on Liability – Attempts to minimize, define, or eliminate the liability of a party under a contract in the event of a loss or claim. Generally, will limit the amount and types of relief and/or damages that a party may be responsible for if a claim is made.


  1. Limitations on Warranty – Attempts to limit the remedies or redress available to a contracting party if the product is defective.


  1. Waiver –Generally, states that a parties’ failure to enforce certain rights under a contract on an occasion, whether intentionally or unintentionally, does not act as waiver to prevent that party from exercising those same rights under the contract, at a later date.


  1. Force Majeure – States that a party is able to delay or terminate performance under a contract, when a situation or circumstance arises that is out of the party’s control and would make performance, impossible, impracticable, illegal or otherwise inappropriate.


  1. Successor and Assigns – States whether or not the contracting parties’ successors and assigns will benefit from or be bound by the obligations of the contract.


  1. Severability– States that if a clause in a contract is found to be invalid or otherwise unenforceable by a court, the invalid clause does not cause the entire contract or the other clauses in the contract to be invalid or unenforceable.


  1. Counterparts Allows contracting parties to sign the same contract at different times and in different locations. If the contract is executed by the parties in different parts, this provision can state that all of the parts equate to one original, collectively, and are one agreement.


  1. Merger and Integration Clause States that the written contract is the entire agreement between the parties and generally, that any prior negotiations, discussions, or agreements are made a part of or replaced by the written contract.


Be sure to read your contracts before you sign.  You might be taking on more than what you bargained for.

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