It was all sunshine and rainbows when it first started. An air of freedom overwhelmed my best friend and I as we prepared to take on the world with our college degrees in tow. At the behest of my landlord, I alone signed the lease on our first post-college apartment, and therein lay a chain of events that taught me the value of reading and negotiating contracts with everyone — from best friends, to landlords, to family members.
“You can always negotiate a contract, whether that means lining through provisions or if it needs a complete redraft,â€ says David Wood, managing partner at Wood & Wood L.L.P. “That document is just an offer. You’re not obligated to agree to anything in there.â€
When it comes to signing a contract, it’s important to go in with your guard up. After all, they are usually more favorable to the person offering the service or product, which indeed makes perfect sense. The need to read and understand any contract is most evident with the housing fiasco that helped to propel the nation to economic upheaval
Earlier this month I posted a piece onÂ how to read a mortgage. In a continuation of how to read the fine print, we’re going to be focusing on red flags and key phrases consumers should be aware of before entering an agreement.
What’s the termination clause? A termination clause, which explains the rights of the parties to cancel the contract, may just be your way out if things go awry. When it comes to property leases, an escape clause could potentially give a tenant the right to terminate a lease prior to its completion. Consumers should look at “what terms will allow you to walk away from the contract,â€ Wood says. Remember, “whatever is presented to you is just an offer. You can always negotiate a contract.â€ If you do not agree with the terms, present a deal that you will agree to. If neither party agrees to any negotiated terms, it may be a sign that the deal is no good, so don’t be afraid to walk away.
Have faith in returns. When making a large purchase, oftentimes sellers include “earnest moneyâ€ or “good faithâ€ provisions in contracts, where a buyer will put down money to show his or her intention of completing the deal, according to Investopedia. However, it’s imperative to be clear on terms governing such a provision, Wood says. “Is it refundable upon the terms and conditions of the contract being met?â€ In some cases, buyers could lose some or all of the money put down if the conditions appear to not have been met.
Understand the repossession clause. For Wood, calls pertaining to contracts usually come once a problem arises. And when it comes to repossession, the cars are far from few. “I think the biggest flaw is people don’t even know there is a repossession clause. He says, many used car buyers aren’t aware that once repossessed, the car can be resold at an auction with the dealership can charge the former owner the difference between what is made from the auction and what the former owner still owes.â€
Review. Review. Review. Obtain a copy of the contract for review, days before it needs to be signed. “Take two days and actually read the entire document. Highlight what you don’t understand,â€ Wood says. From there, use your resources to gain a better understanding of the terms. Talk to friends and family who might be familiar with the subject matter or such a contract. Consider speaking to an attorney or Googling the information online. Also, ask the person giving you the contract to clarify anything you don’t understand.
Contemplate the “what ifs.â€ Once you’ve read over the document, think about potentially harmful situation that could occur once the document is signed. If you’re moving in with your best friend and only one name is on the lease, what will happen if your best friend can no longer make the payments? Think about everything that can go wrong, and how the contract may or may not benefit you given such a scenario.
Renita Burns is the editorial assistant at BlackEnterprise.com.