Drafting agreements?

Durga Rao , Last updated: 21 August 2009  

        In day-to-day commercial transactions, we will enter into many agreements or contracts. While certain agreements are prepared mechanically and get executed, certain other agreements require careful consideration of many things. For example, a sale agreement contains standard clauses and in many cases it is prepared mechanically barring the change in name of the parties, the schedule, the consideration etc. And, again, it is not the case with a complicated lease transaction which contains many details.  The agreement or the contract is the basis for the parties concerned to protect their rights by approaching a court of law in case their rights under the agreement are violated or there is a breach of terms of agreement by other party to the transaction. As such, so much care is to be taken while drafting an agreement or a contract as otherwise the consequences of bad drafting can be disastrous.
        I have seen one very typical case where there was an agreement between a landlord and the tenant. The substance of the agreement is that the tenant has to vacate the premises, the landlord has to make a new construction and the landlord has to give the premises at the newly constructed building to the tenant. The agreement contains other things also like the advance amount, the rental issues etc. Despite the clear and registered agreement between the parties, the rights of the tenant under the agreement could not be protected and landlord had taken the advantage of technical mistakes while drafting the agreement. The tenant has taken so much effort for completing the deal with the Landlord; however, he could not enforce the understanding. The landlord has received money from the tenant, had constructed the new structure and also let-out the premises to some third parties and benefited form the advance amounts and the increased rentals.
        In another case, I have seen a very detailed and complicated Lease Deed and the Deed comprises some 60 pages. The stakes in the Deed are huge and the Deed can not be altered very easily in view of implications. Despite the fact that parties are very firm in their understanding, they have committed a serious wrong by not making the consideration definite. When the consideration is not definite and if the Deed requires compulsory registration, then, the calculation of stamp duty is not possible and there can be objections to the Registration of Deed. If the Deed is not registered as required, it will have its own implications.
        Again, the builders’ agreement, the employment agreement, the technology transfer agreement, franchise agreement etc. are to be carefully prepared in view of inevitable complications.
        Likewise, if care is not taken while drafting an agreement or a contract, then, it will have disastrous consequences and at times, the agreement may not qualify for enforcement before appropriate forum or court. So many intrinsic issues are there in the course of preparing an agreement or a Deed; those should be carefully kept in mind.
        The complications in the course of preparing the agreement or a contract can be like:
1.    Whether a clause in the share purchases agreement that the disputes in the course to be referred to Arbitration will bar the jurisdiction of Company Law Board or the Company Court?
2.    Whether the subjects governed by special laws like the Rent Control Law, be dealt with by an Arbitrator in view of the clause in the Lease Agreement?
3.    Whether an agreement can contain a clause mentioning about the place of Arbitration where the cause of action has not arisen at all?
I have mentioned only few complications in the course of preparing an agreement, and in fact, the issues to be considered are many.
Few precautions to be taken while drafting an agreement/contract/Deed are as follows:
(1) As far as possible, it is to be ensured that the deeds are prepared by the legal professionals or the concerned experts.
        (2) The mechanical preparation of agreements and deeds is to be avoided and as far as possible there should be detailed discussion among the persons concerned and the expert who prepares the draft.
        (3) The law on the subject is to be carefully looked into before preparing a deed. For example, making balance between the provisions of Rent Control Act and the covenants of the Lease Deed.
        (4) Care is to be taken while getting the document signed by the parties concerned and each party has to ensure that the other party puts his genuine signature and there should be verification of signature with some other authenticated document.
        (5) The issue of getting the witness signed to the transaction should not be neglected and the independent and trustworthy people are to be chosen to be a witness to the transaction.
        (6) More care is to be taken while entering into transactions with minors and mentally disabled.
        (7) More care is to be taken by both the parties when one of the parties is an illiterate like making the contents read over by a trustworthy middle man.
        (8) All the relevant law, the basic documents, resolutions, the authority etc. to be verified carefully while entering into a transaction with a juristic person like company or trust etc.
        (9) As far as possible, corrections, deletions, omissions and errors etc. to be avoided after the parties concerned signed the instrument.
        (10) If making corrections over a deed or agreement is inevitable, then, it is to be ensured that both the parties puts their full signatures endorsing the corrections or alterations in order to avoid the possibility of fraudulent litigation.
        (11) Even if the registration of document is optional, it is advisable to get the instrument registered.
        (12) When the subject matter of an agreement pertains to alienation of property, then, the implications of under valuing the property is to be carefully considered.
        (13) More care is to be taken while preparing supplemental deeds and it is to be ensured that the supplemental deed is not becoming a separate transaction independent of the original agreement.
        (14) The mode of adjudication and the jurisdiction is to be dealt with carefully.
          The intention of the above small insight is to highlight the importance of drafting.

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Durga Rao
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