With agreements being the cornerstone of most business arrangements, you might be surprised by the number of business owners who continue to ignore the importance of putting it in writing–that’s right, a written contract. No matter how well-intentioned both parties are – weather it’s your tenant, vendor or supplier – operating on a handshake is far too risky for your business.
In this blog post, we will discuss the importance of written agreements/contracts in the world of commercial real estate. Let’s get started.
Why Is a Written Contract So Important In Commercial Real Estate?
But what is at stake? The reality is that it is simply much more difficult to enforce an oral contract for a number of reasons, including:
Unclear Terms – As we mentioned earlier, many business deals are done by a handshake and handshake deals work fine – until they don’t. This is because it is often difficult to determine the intended terms of an oral contract. A single word can change the legal meaning of a term or provision. Not only that, but agreements that aren’t in writing can be forgotten about over time and that includes the terms of the agreement.
A written agreement creates a permanent record. All forms of written communication become a permanent record of ideas, incidents, proposals and other important facts. The record helps business owners access information quickly, especially if it is written in a digital medium. Written communication is also used in legal proceedings, and can become the only defense for adverse legal actions taken against the company.
Missing Default – Most professionally written contracts include an entire section devoted to what constitutes a default under the contract. In an oral contract, however, what constitutes a default can be vague, or even missing entirely. This will cause significant problems down the line for both parties.
“He said – She said” – If and when there is a dispute over an oral contract, a court is often left to sift through a whole lot of “he said – she said” trying to determine where the facts are. This can get extremely messy for obvious reasons. A professional written agreement/contract protects both parties’ interest if a legal dispute were to ever arise.
Modifications and Amendments – With a written contract, modifications or amendments are included in writing, making it abundantly clear when the parties intended to change the terms of the original contract. When an oral contract is used, however, it can be very difficult to differentiate between arguing and negotiating and actually agreeing to modify the contract after the initial contract was agreed to by the parties.
Final Thoughts
The purpose of a contract is to outline terms and conditions that are mutually agreed upon by both parties. When you reduce those terms and conditions to writing, you will be surprised at how many additional factors there are to consider. Not putting your agreement in writing, however, prevents you from having that full discussion with the party on the other side of the deal, and sets you up for possible misunderstandings down the line. Good intentions and trust are important to business relationships, but they are not a substitute for a written agreement.
Additionally, written contracts establish loyal professional relationships. As an owner, building and maintaining loyal relationships with your tenants, vendors and suppliers is so important.
Clear communication helps build and maintain trust and integrity between both parties. Well-written communication helps define goals, identify problems and arrive at solutions. This is important in every aspect of business. Remember these four words the next time you shake hands after a business meeting: Get it in writing.
