Be it a simple Memorandum of Understanding or a complex Founders Agreement, any legally binding agreement can prove to be challenging to any individual or a business entity. Given the vital role of any legally binding agreement, a well drafted agreement can save an entity from unpleasant legal complications. People are often hesitant to get professional help to draft a suitable agreement for various reasons but more often than not, it is associated with the fee that a professional may charge for the draft. As a result, people choose to adopt standard agreements that is freely available on the internet.
A standard agreement template seems to be attractive to business entities as they are easy to obtain i.e. there are various websites that offer standard agreements for free or charge a nominal amount for the same, and a quicker option to cater to emergency or urgent situations. Though standard agreements have various advantages, it has its own disadvantages that may prove to be dangerous to a business entity/ individual in the long run. It is common for any entrepreneur to safeguard the companies interests and at the same time cut costs and make strategic decisions. This article aims at summarizing why using a sample agreement is not the best idea and how it can adversely affect a business entity.
The following example gives a better understanding of why using a standard agreement is not the best idea. A client had adopted a standard Founders’ Agreement template available on the internet. It so happened that this template did not cater to the minute details that would have been taken care of had the agreement been customized. The template was ambiguous about how the liabilities were to be borne by both parties, how the dilution of shares would take place if a new partner is admitted, who would own the intellectual property if the firm ceases to exist. Eventually, difference of opinion arose between the founders’ which led to unpleasant legal complications as a result of which the client ultimately gave up his entire share in the firm and incurred huge losses. This unpleasant experience is attributable to the fact that a customised agreement was not drafted addressing the minute details.
The following section details the disadvantages of standard agreements.
Standard agreements are not custom made
Sample or standard agreements are drafted to cater to general situations. Moreover, such templates are drafted in a general manner and are not elaborate. Thus, chances are that these templates may not address your requirements to the point and may not legally protect you completely.
Take a Rent Agreement for example, standard rent agreements state that the tenant is liable to get the rented property re-painted at the time of vacating. What if the tenant stayed in the rented property only for 6 months? Can such a clause be made applicable to him?
Sample agreements do not pay attention to such minute details as the main aim is to cater to general situations.
Each agreement is unique
Each agreement is unique to the parties to the contract. Thus, every agreement needs to be drafted to suit the requirements of the parties. Standard agreements go against this concept of each agreement being unique.
Law is subject to amendments from time to time
The law, rules and regulations pertaining to the subject matter of the agreement may change from time to time. Sample templates may not pay attention to such change and continues to cater to the requirements prescribed by the law prior to amendment. This can prove to be a major threat to any individual and/or business entity as it is possible that such an individual or an entrepreneur may not be informed or educated about such a change/ amendment.
You cannot rely on the source
The website from where the standard agreement is being sourced from is unknown and called be relied on. You would not be able to trace if such templates are drafted by professionals or by any other individual. Thus, the quality of the template cannot be relied upon.
Laws may vary from jurisdiction to jurisdiction
A website may offer a template complying with laws of the jurisdiction it belongs to and such agreements may not necessarily be suitable to use in other jurisdictions. Individuals not having sound knowledge about jurisdiction specific laws may adopt the template as is. This may in-turn create problems to the individual/ entrepreneur.
Take an employment agreement for example, employment laws differ from jurisdiction to jurisdiction. If a business entity in Canada decides to use a standard employment agreement sample suitable to be used for Indian jurisdiction, such an agreement would not have paid attention to the Employment Standards Act, 2000 which necessitates every employer to pay to the employee an amount at the time of termination of the employment, in accordance with the law. If such a business entity does not comply with this requirement, then it can fall into trouble in the long run.
Legal issues can get complex
Since standard agreements cater to general situations and are not custom made, such agreements may either be totally one-sided or may not protect your interest completely. Since no professional guidance or help is involved, there may not be scope for negotiations as well. It may be too late to get professional help to sort out issues if such issues get complex and need the court’s interference to sort it out.
Pascale Chapdelaine in her book review on Boilerplate, the Fine Print, Vanishing Rights, and the Rule of Law states that templates can lead to a scenario wherein an individual may consider a template to cover all important clauses which are considered inalienable and may use the template “as is”. She gives purported contracts in form of “browsewraps” as an example of sheer ignorance.
Standard agreements don’t reflect the particulars of a project and hence do not cater to an individual or business entity’s requirements. It is a standard practice for every business entity to cut costs where possible. But one must ensure that such cost cutting does not turn expensive or cost the individual, the entire business in the long run. If any individual or business entity does not intend to get professional help to draft an agreement to suit their requirement, it is advisable that such business entities customize the template to suit their needs and not use such templates “as-is”, in order to avoid legal complications in the long run.