A comprehensive guide on how to draft a contract

Sometimes, it seems like the world revolves around contracts.

They’re a central part of how all companies do business, which means drafting them can be daunting — after all, a lot is riding on that document.

Never fear, though.

In this guide, we’ll teach you how to draft a contract so that it contains everything you need to include, makes sense, and is even legally enforceable.

Key takeaways:

• Anyone can write a contract – however, legal expertise can be important if you want to create an effective one.
• Make sure to include every element of a contract, including terms and conditions and the agreement.
• Ensure that you don’t miss anything with a step-by-step checklist.
• Using contract management software can make writing contracts easier.

Can anyone write a contract?

If you’re worrying about whether you have the right qualifications or experience to write a contract, you can stop losing sleep – there are no requirements dictating who can or cannot write a contract.

After all, a contract is simply a written agreement between two or more people.

If I use the back of a napkin to promise you that I’ll pay you for lunch tomorrow, that’s technically a contract!

However, contract authoring is rarely as simple as this in the real world.

At least some legal experience is helpful if you want to create a contract that’s watertight and future-proofed, while you should also have a clear understanding of the terms that you want to include and the context surrounding the agreement.

Don’t let that worry you, though.

If you’re already working in the legal profession, you’ve likely seen enough contracts that you can start to write a pretty effective one yourself.

How to draft a contract agreement: The things to include

When you’re drafting a contract, it can be easy to be overwhelmed by the number of things that you think you have to include.

Every contract will be different (so you should consider the specific details of your agreement), but here’s a checklist of some of the non-negotiable elements of a contract:

1. The agreement

We’re not just writing contracts for the sake of it – they all mean something.

That’s why the most important part of any contract is the agreement. This is essentially just what the contract means.

A contract between a landlord and a tenant, for instance, would include an agreement that states that the tenant has agreed to rent the property.

It doesn’t really matter where you put this information, but you must include it somewhere.

Try to write the agreement as clearly as possible so that there’s no ambiguity to cause confusion in the future.

2. The parties

Who said that lawyers weren’t fun? We’re already starting to talk about parties!

Unfortunately, there’s not much dancing when it comes to writing a contract. Instead, the term “party” refers to someone involved in the agreement.

In the example of a rental agreement, the two parties would be the landlord and the tenant.

When you’re drafting the contract, you should include the names and addresses of each party.

This will ensure that there’s no uncertainty about who’s implicated in the contract, while it should also help one party to contact the other if there are any issues further down the line.

3. The “consideration”

Let’s be honest – the “consideration” is just a fancy piece of legalese. In most cases, we could just refer to money.

In the case of the rental agreement, the consideration would be the monthly rent paid by the tenant.

There are other forms of value that are also included under this term; I might promise to wash your car if you scratch that part of my back that I can’t really reach, for instance.

But you’ll almost certainly be writing a contract for an agreement that sees money exchanged for goods or services.

Inserting the consideration into the contract is vital if you want to be sure that the paying party will be legally bound to make the payment.

4. Terms and conditions

The terms and conditions are what give contracts a bad name.

How many times have you had to sign a contract that includes dozens of pages of conditions?

Nonetheless, you should always include a section for terms and conditions when you draft an agreement.

These will outline each party’s obligations and rights. This is essentially a section that makes it as clear as possible just what each party is agreeing to.

5. Acknowledgement of competence

There are legal protections in place to stop some people without full competence, such as children, from signing agreements that could take advantage of them.

In order for your contract to be legally valid, you should include a statement that recognizes that each party has the capacity to sign the contract.

6. Room for dates and signature

A contract without a signature isn’t worth the paper it’s printed on.

After all, it’s only with the signature of each party that an agreement becomes legally enforceable.

This means that you shouldn’t forget to include room for every party to sign the contract.

As well as this, a lot of contracts will have to be dated.

This is needed in case of any issues in the future, while it can also have other effects: sometimes, an agreement is in place from the moment that it is signed, while other contracts will have a specified contract effective date at some point in the future.

How to draft a contract between two parties: A step-by-step checklist

Now that you know what you need to include in your contract, it’s time for you to start drafting.

Following this step-by-step checklist will mean that you can write your contract with confidence:

1. Check out the parties

The parties to a contract are the most important element; without them to enact the terms of the agreement, there’s no point in even writing the contract.

If you’re drafting on behalf of other parties, therefore, you must know the parties inside out.

This will mean that you know the intentions of the contract, while you can also be sure that they’re fit to participate – that’s to say that they’re over 18 and not under the influence of alcohol, for example.

From this point, you can start to actually write the contract.

The top of any contract usually names each party and briefly summarizes the agreement between them.

2. Come to an agreement on the terms

It’s vital that you’re as straightforward as possible from the moment that you start to write your contract.

Not only will this make contract management easier in the future, it will mean that the contract is simpler to draft.

This is why you should make sure that all parties agree on the terms of the contract before you start to draft. If you have to physically get the parties around a table to spell out an agreement, then so be it.

However, for simple contracts, just receiving written intentions from each party should suffice.

3. Specify the length of the contract

Let’s say that I’ve agreed to wash your car. I’ve just spent all day making it spotless, so I’ve fulfilled my side of the bargain, right?

Well, if you were especially litigious, you could argue that I never agreed when I’d stop washing your car – I’d potentially never be able to leave your driveway.

This sort of dispute is unlikely to occur in the real world, but it shows why it’s so important to specify some sort of endpoint in the contract once you’ve outlined the agreement.

A lot of contracts are for ongoing work, but even these should include a termination clause – these clauses can also be used for parties to end a contract prematurely.

4. Spell out the consequences

Contracts are an expression of good faith – however, not everything goes exactly to plan.

Once you’ve drafted the agreement and the length of the contract, you should outline the consequences for each party should they break the agreement.

These will depend on the type of contract that you’re producing. In a rental agreement, for instance, you’ll probably have to include the consequences of a tenant failing to pay rent on time or damaging parts of the property.

Without these sorts of protections, the value of a contract becomes essentially worthless.

5. Determine how you would resolve any disputes

Of course, simply including penalty clauses is not necessarily enough to manage these issues, as it’s always possible that the parties will disagree over failures to enact the agreement.

You should ask the different parties to agree to a method of dispute resolution, such as mediation, arbitration, or civil litigation.

Putting this into the contract will mean that any disputes will be fairly straightforward to resolve.

6. Think about confidentiality

Sometimes, the contents of a contract need to be kept under wraps – it might include sensitive personal information or company secrets.

If this is the case, you should insert a confidentiality clause into the agreement.

Breaching this confidentiality would then itself be a breach of contract.

7. Check the contract’s legality

When you’re thinking about how to draw up a contract, you’re probably most worried about producing a document that is legally enforceable.

To be sure that your contract is actually workable, you should make sure that nothing in it breaches any laws or local regulations.

8. Open it up to negotiation

All of that might seem like a lot of work.

Unfortunately, you might have to do it all over again! Before a contract is signed, you should open it up to negotiation between the different parties.

This will mean that everyone is happy with the agreement when it comes to signing it.

If you’ve undergone a thorough process of preparation and research, however, it’s highly likely that all the parties will be content with your final agreement.

Tips for making your contract make sense

Now you know the step-by-step process of how to create a contract agreement.

But what about the actual writing that goes into a contract? Follow these tips to make sure that your agreement makes sense:

Keep it simple

A legal agreement is not the place to pull out your best Shakespeare impression.

Flowery prose and complex syntax will only make things more difficult, and you should also try to avoid jargon and legalese.

Instead, use plain English throughout and remember who you’re writing for.

Not just the parties but also a potential nonspecialist litigator in the future.

Watch out for modal verbs

Verbs like ‘may’, ‘shall’, and ‘will’ need to be handled carefully when you’re drafting a contract.

‘Shall’ is used to describe an action by a party – for instance, the tenant shall pay rent each month – while ‘will’ is used for events that don’t require an obligation for a party.

Similarly, ‘may’ is usually used as a way of saying ‘reserves the right’.

Avoid synonyms

Usually, we try to mix up our vocabulary when writing; however, it’s better to stick to the same old words and phrases throughout a contract.

This’ll probably mean that you feel like your contract is repetitive – you might get sick of using a word like ‘services’ – but it will avoid any confusion.

If you want to be really certain that the meaning of terms is clear, you should define them at the start of the contract.

This will mean that it’s even more important to avoid synonyms.

Divide and conquer

You need to aim for ease and clarity when writing a contract.

Dividing the contract into multiple sections and subsections will therefore help you to simplify the agreement.

Try to avoid any large blocks of text and use bullet points when possible.

Leverage contract templates and management software to help create your agreements

You should now be more confident about drafting contracts.

However, there’s no getting around the fact that this involves a lot of work.

This is why PandaDoc contract templates can be so valuable.

Rather than having to start from scratch, you can simply choose from a range of templates and adapt them to your needs.

Similarly, PandaDoc’s contract management software will automate the process of looking after a contract once you’ve drafted it.

With these tools, the task of drafting a contract will be much easier.

Disclaimer

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