Legal Terms vs Commercial Terms: What You Need to Know - Law Quarter (2024)

• Commercial Law

Contracts are essential for any business transaction, but they can also be complex and confusing. Contracts often contain both legal terms and commercial terms, which have different implications and consequences for the parties involved. In this article, we will explain what the difference is between legal terms and commercial terms in a contract, why lawyers should always review draft contracts, and why commercial managers in a business should also understand the commercial terms and their impact.

Legal terms are the provisions in a contract that define the rights and obligations of the parties, the remedies for breach, the dispute resolution mechanisms, and the governing law and jurisdiction. Legal terms are usually drafted by lawyers and are based on legal principles and precedents. Legal terms are important because they protect the interests of the parties and provide certainty and enforceability in case of a dispute.

Commercial terms are the provisions in a contract that relate to the business aspects of the transaction, such as the scope of work, the deliverables, the payment terms, and the performance standards. Commercial terms are usually negotiated by the parties and are based on their business objectives and expectations. Commercial terms are important because they reflect the value and the risk of the transaction and affect the profitability and the reputation of the parties.

Lawyers should always review draft contracts before they are signed by the parties, for several reasons. First, lawyers can ensure that the legal terms are clear, consistent, and compliant with the applicable laws and regulations. Second, lawyers can identify and mitigate any potential legal risks or liabilities that may arise from the contract. Third, lawyers can advise the parties on the best legal strategies and options to achieve their desired outcomes and protect their interests. Fourth, lawyers can help the parties resolve any legal issues or disputes that may arise during the contract execution or performance.

While the distinction between commercial terms and legal terms is often made, that does not mean that all terms do not need to be reviewed by a lawyer. The difference is more relevant in terms of commercial managers understanding the areas of a contract that they need to understand, in depth.

Commercial managers in a business should also understand the commercial terms and their impact, for several reasons. First, commercial managers can ensure that the commercial terms align with the business goals and expectations of the parties. Second, commercial managers can monitor and evaluate the performance and the results of the contract and make any necessary adjustments or improvements. Third, commercial managers can participate in the negotiation process and influence the commercial terms and their impact. Fourth, commercial managers can communicate and collaborate effectively with the lawyers and the other party to achieve a mutually beneficial and satisfactory contract.

Contracts are composed of both legal terms and commercial terms, which have different implications and consequences for the parties involved. Lawyers should always review draft contracts to ensure that the legal terms are clear, consistent, compliant, and protective. Commercial managers should also understand the commercial terms and their impact to ensure that the contract reflects the value and the risk of the transaction and aligns with the business objectives and expectations of the parties. By working together, lawyers and commercial managers can create and manage successful contracts that benefit both parties.