What is a clause in a contract, exactly?
Contract jargon can be complex — so we’re doing our best to simplify it. Discover the basics behind contract clauses, learn how they work, and gain a stronger understanding of what they look like within contracts.
Legal contracts and agreements — like most written documents — are made up of several unique parts that address all kinds of specifics. One of those functional elements is the contract clause — a crucial written tool present in every contract.
But what is a clause in a contract, exactly, and what does it do? Read on to learn more about contract clauses and how they can be used to create comprehensive legal contracts.
What exactly is a contract clause?
The easiest way to think about a contract clause is to first understand that it’s a written portion that exists to do a legal-specific job. In other words, a clause in a contract is a unique section that addresses a specific need, privilege, right, deadline, or duty.
Basically, a contract clause is a written section that unscrambles any contractual confusion. There are many ways to write clauses, but while each applies to a different aspect, their goal is ultimately the same — to clearly define and outline one specific part of the contract or agreement.
What is a clause in a contract used for?
Almost any section of a contract that’s being used to specifically define the perimeters of the agreement could be considered a clause — but to better illustrate how they work, we’ve provided a few examples of how different clauses can be used.
- Merger clauses confirm that the current contract supersedes any previous contract.
- Venue clauses specify where the contract can be enforced.
- Statute of limitations clauses give both parties a specific amount of time to file lawsuits.
- Non-disclosure clauses require parties not to disclose the other party’s private information.
Common contract clause types in business.
There are a number of different types of clauses within legal agreements that can be used for different scenarios. Contracts in the business world typically include various clauses to define the terms and conditions of the agreement. Here are six common contract clause types.
- Confidentiality clause — protects sensitive information from being disclosed to third parties
- Indemnification clause — specifies who is responsible for covering legal costs and damages in case of disputes
- Termination clause — outlines the conditions under which the contract can be terminated
- Choice of law clause — determines which jurisdiction’s laws will govern the contract in case of disputes
- Payment and pricing clause — specifies payment terms, pricing, and invoicing procedures
- Arbitration and dispute resolution clause — outlines the process for resolving disputes, often through arbitration or mediation rather than litigation
Do you always need to add a contract clause?
Clauses in contracts are not always mandatory in every agreement. Their inclusion depends on various factors:
- Clarity. If the contract is clear and straightforward, additional clauses may not be necessary.
- Regulations. Some industries or contracts may have mandatory clauses due to legal requirements.
- Customization. Complex or high-stakes agreements may need custom clauses, while standard agreements may not.
- Risk. Clauses are crucial for addressing and mitigating specific risks and liabilities.
- Changes. Contracts should adapt to changing circumstances, prompting the addition or modification of clauses.
- Practicality. Enforcing some clauses may be impractical, leading to their exclusion.
- Negotiation. The inclusion of clauses is subject to negotiation and agreement between the parties.
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