Key commercial contracting clauses

A benchmarking clause gives the customer in an outsourcing or managed services contract the right to periodically compare the provider's pricing and service levels against market comparables, with adjustment mechanisms if the provider falls outside market range.

An efforts clause defines the standard of performance a party must meet - from "best efforts" (highest obligation) to "commercially reasonable efforts" (balanced with business realities). Choosing the wrong standard can turn a binding commitment into an empty promise or an impossible obligation.

Standardized contract language that is commonly used in many contracts. It includes clauses that are typically included in contracts, such as choice of law, indemnification, and force majeure.

Learn how breach clauses define defaults, cure periods, and remedies and how to draft them for SaaS, construction, and supply contracts.

The duty to mitigate requires a non-breaching party to take reasonable steps to reduce its losses after a breach occurs. Failure to mitigate does not extinguish the underlying claim, but courts will deduct avoidable losses from the damages award.

A data protection clause allocates responsibility for personal data between a processor (the vendor handling data) and a controller (the company owning the data). It spells out who does what with personal information, where it lives, who can access it, and what happens if someone breaches it.

A disclaimer clause excludes or limits warranties and liabilities that would otherwise apply by law. In software and SaaS contracts, disclaimers of implied warranties are near-universal. Enforceability depends on conspicuousness (ALL CAPS under UCC 2-316), consistency with express warranties elsewhere in the contract, and compliance with consumer protection statutes.

A drag-along rights clause lets majority shareholders force minority holders to join a company sale on the same terms. It prevents holdouts from blocking acquisitions, which is why 94% of VC-backed companies include one. Key negotiation points include the trigger threshold, minimum price floor, indemnification caps for dragged shareholders, and pairing with tag-along rights.

A dispute resolution clause establishes the process parties must follow to resolve disagreements arising from a contract. It typically defines a sequence of methods, from informal negotiation to formal arbitration or litigation, along with governing law, venue, and applicable rules. The clause helps parties manage conflicts efficiently and reduces the cost and uncertainty of unstructured disputes.

An escalation clause is a contractual provision that allows for automatic price or cost adjustments based on specified triggers - inflation indices, material costs, market conditions, or predefined schedules. In construction, it protects contractors from commodity price spikes that can turn a profitable project into a loss.

An evergreen clause - also called an auto-renewal clause - automatically renews a contract for successive terms unless one party provides timely notice of non-renewal before the current term expires. The default outcome is continuation: if nobody acts, the contract lives on.

An earn-out clause is the M&A mechanism that bridges the valuation gap between what a buyer is willing to pay today and what a seller believes the business will be worth tomorrow. It defers a portion of the purchase price, making payment contingent on the target hitting specified financial or operational milestones after closing.

An estoppel letters clause requires a party to confirm in writing the current status of an agreement, preventing later contradiction. In commercial real estate, 98% of lenders require tenant estoppel certificates before funding. Key negotiation points include the response deadline (market standard is 10-15 business days), deemed approval consequences, and the scope of required certifications.

An exclusive supplier clause requires the buyer to purchase all or a specified percentage of its requirements for particular goods or services from a single supplier. These clauses provide volume certainty for the supplier and supply security for the buyer, but they also create dependency risk. Key negotiation points include scope of exclusivity, minimum purchase commitments, benchmarking rights, and termination triggers.

An Early Termination Clause lets one or both parties end a contract before its stated expiry date. It sets out who can exit, when, how much notice (or cure period) is required, and what (if anything) must be paid on the way out. Done right, it creates a clean exit ramp; done badly, it spawns break-fees, litigation, and brand-damage. Relevant in Commercial Lease agreements

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An easement agreement clause grants one party the right to use another's property for a defined purpose without transferring ownership. Types include utility, access, conservation, and prescriptive easements. Proper drafting requires precise survey descriptions, clear maintenance obligations, and insurance requirements to avoid disputes that average $75K-$200K to litigate.

An exclusivity clause is a contractual agreement between the buyer and the seller that grants exclusive rights to one party to provide a particular product or service. It restricts the other party from providing similar products or services to other customers. The exclusivity clause helps in ensuring a steady flow of business and provides a competitive advantage to the party with exclusive rights. However, it is essential to ensure that the exclusivity clause does not violate any competition laws.

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A mechanism where a third party holds funds or assets on behalf of two parties until certain conditions are met. It is commonly used in real estate transactions, where funds are held until the property is transferred and all conditions are met.

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Frustration of purpose is a common law doctrine that discharges a party from contractual obligations when an unforeseen event destroys the principal purpose for which the contract was made. Unlike impossibility, the focus is on whether the value of performance has been eliminated.

A force majeure clause excuses one or both parties from performing when extraordinary events - wars, pandemics, natural disasters, government actions - make performance impossible, impracticable, or illegal. It's the contract's emergency brake: pull it correctly and obligations are suspended or terminated; pull it incorrectly and you've just committed a breach.

A guarantee clause obligates a third party (the guarantor) to answer for the debt, default, or obligations of another party (the principal debtor) if that party fails to perform. Guarantees come in several forms - personal, corporate, parent company, demand, and conditional - each carrying different risk profiles and enforcement mechanics.

The implied covenant of good faith and fair dealing is embedded in every contract under U.S. law, whether the parties want it or not.

A gross-up clause requires the payor to increase a payment so that, after deduction of any withholding tax, the recipient receives the full intended net amount. It allocates withholding tax risk to the payor rather than the payee.

A governing law clause specifies which law will apply to a contract. This is important because laws can vary from jurisdiction to jurisdiction, and different laws may provide different protections or obligations. The governing law clause may also specify where disputes will be resolved.

An insurance clause requires one or both parties to maintain specific types and levels of insurance coverage throughout the contract term. It typically mandates additional insured endorsements, certificates of insurance, and notice of cancellation — ensuring that if something goes wrong, there is actual coverage to respond.

An independent contractor clause defines the working relationship as non-employment, but merely labeling someone a contractor does not make it legally so. Courts and agencies apply multi-factor tests to determine actual status, and misclassification can trigger back taxes, benefits liability, and penalties.

An Intellectual-Property Clause allocates ownership, licensing rights, and infringement risk for all copyrights, patents, trademarks, trade secrets, and know-how touched by the contract. It prevents later fights over “Who owns what?” and “Who pays if it infringes?

An indemnification clause is used to shift the risk of loss from one party to another. The indemnitor agrees to cover any losses or damages suffered by the indemnitee as a result of the indemnitor's actions or omissions.

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A Joint and Several Liability (“J&S”) Clause makes each co-obligor responsible for the entire debt or obligation, not just its share. The creditor can chase whichever party is easiest to collect from; co-obligors sort out contribution among themselves later.

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A jurisdiction clause specifies which court will have jurisdiction over any disputes arising from the contract. This can be important for parties located in different countries, as the laws and legal systems can vary widely.

A liquidation preference determines the order and amount in which investors get paid when a company experiences a "liquidity event" - a sale, merger, dissolution, or IPO. Preferred stockholders with a liquidation preference receive their specified return before any proceeds are distributed to common stockholders.

A letter of intent (LOI) - also called a memorandum of understanding (MOU) or heads of terms - is a pre-contractual document that outlines the principal terms of a proposed transaction before the parties negotiate and execute definitive agreements. Most LOI provisions are non-binding, but certain clauses (exclusivity, confidentiality, governing law, and sometimes good faith obligations) are typically carved out as binding.

A lock-up agreement restricts shareholders from selling or transferring their shares for a defined period after an IPO or major transaction. It stabilizes the share price during the critical post-offering period by preventing insider selling pressure.

A clause in a contract that limits the liability of a party in case of any damage or loss incurred by the other party. The limitation of liability clause is designed to protect the parties from excessive damages or claims that may arise from the contract. The clause is usually negotiated and agreed upon by the parties before the signing of the contract.

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A liquidated damages clause is a contractual provision that sets a predetermined amount of compensation payable by one party if it breaches a specific obligation. The amount is agreed upon at the time of contracting and is meant to represent a genuine pre-estimate of the loss the non-breaching party would suffer. Courts will enforce liquidated damages clauses only if the amount is reasonable and not punitive.

A milestone clause ties contractual obligations — typically payments or performance rights — to the achievement of defined events or deliverables. The critical drafting challenge is defining what "achieved" means, who determines completion, and what happens when milestones are partially met or missed.

A Material Adverse Change (MAC or MAE) clause allows a buyer to walk away from an acquisition if the target's business deteriorates significantly between signing and closing. MAC definitions and their carve-outs are among the most heavily negotiated provisions in any M&A purchase agreement.

A non-circumvention clause prevents one party from bypassing another to deal directly with contacts, clients, or business opportunities introduced through the relationship. These provisions are the backbone of intermediary, broker, and referral arrangements - without them, a party can invest significant effort identifying and introducing a counterparty to a lucrative deal only to be cut out before any commission or fee is earned.

A non-waiver clause provides that a party's failure to enforce any contractual right does not constitute a waiver of that right. The clause typically requires any waiver to be in writing, states that a waiver of one breach does not waive subsequent breaches, and confirms that all rights and remedies remain cumulative.

A notice and cure clause requires a party alleging a breach to deliver written notice specifying the default and to afford the breaching party a defined period to remedy it before the non-breaching party may terminate or pursue other contractual remedies. These provisions protect both sides - the breaching party gets a fair opportunity to fix the problem, while the non-breaching party preserves a clear, enforceable path to termination if the breach goes unaddressed.

A negative pledge clause is a covenant in a loan or bond agreement that restricts the borrower from granting security interests over its assets to other creditors without providing equivalent security to the existing lender. It protects unsecured creditors by preventing the borrower from elevating other creditors' claims through collateralization.

Novation is the substitution of a new contract for an existing one, typically replacing one party with a new party while extinguishing the original contract entirely. Unlike assignment (which transfers rights but leaves the original contract intact), novation requires the consent of all three parties - the outgoing party, the incoming party, and the remaining party - and transfers both rights and obligations.

A no-shop clause prevents the target company in an M&A transaction from soliciting, encouraging, or engaging with competing bidders during a defined exclusivity period. It protects the buyer's investment in due diligence while the deal is negotiated.

A non-disparagement clause prohibits parties from making negative statements about each other. The NLRB’s 2023 McLaren Macomb decision fundamentally changed the landscape - non-disparagement provisions in employee agreements that could chill Section 7 rights are now presumptively unlawful.

A notice clause specifies how parties communicate formally - which methods work, where to send notices, and when notice is deemed received. In 2025-26, with email as default and blockchain timestamping becoming auditable, the gap between "I sent it" and "they received it" has collapsed, yet many contracts still demand registered mail. This clause can turn a valid termination into a void one if you send email instead of certified mail.

A non-solicitation clause restricts employees or service providers from directly recruiting colleagues, customers, or vendors for a defined period following separation or contract termination. Post-FTC non-compete ban, non-solicitation has become the preferred employee-restrictive covenant, offering stronger enforceability and clearer public-policy alignment than its predecessor.

A non-compete clause restricts an employee, contractor, or seller from competing with the employer or buyer for a specified time period, geography, and scope. Enforceability hinges on reasonableness; the 2024 FTC ban on broad non-competes has fractured the enforcement environment, with California remaining a strict no-compete state while Texas and Florida continue aggressive enforcement.