Monday, January 16, 2006

Setting Dates

I spent some time today dealing with an annoying and quite avoidable contract issue. Virtually all contracts have important dates - the date the agreement begins, the date it terminates or renews, the outside date upon which a merger can be terminated, the date puts, calls, shotgun rights or other exit mechanisms kick in – you name it. Far too often, these dates are defined based on future occurrences (e.g., “the contact term shall begin once X happens”), other agreements (“the contract term shall begin once Agreement Y is executed”), or, the bane of my existence today, both (“the contract term shall begin on the later of X happening or Agreement Y being executed”).

In the months following an agreement being entered into, terms like this will typically not cause much consternation. Everything you need is at hand. But let’s say you’re dealing with a partnership agreement, distribution contract, long-term lease or the like. Let’s say the original agreement was signed 10-15 years ago, it’s been amended four times and assigned twice. Maybe you’ve picked the agreement up in an acquisition. Now, you’ve got to track down all of those ancillary events and agreements just to determine how the contract is supposed to run, and perhaps even whether it is still in effect. Besides the annoyance, the need to track and follow this trail of dates and agreements greatly increases the chances that someone will inadvertently blow a date under the agreement. Sure, maybe it will be the other side, but do you really feel that confident about your own contract management tools?

I think that, wherever possible, these dates should be clearly set and determined within the contract itself. Yes, there are times when that doesn’t work. But I think that these undefined dates are usually more a product of laziness than inability to reach agreement. In my experience, mutually-acceptable dates can usually be set very easily, and you’re doing future handlers of your contracts a great service by setting them up this way.

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