Reading, writing, and revising complicated business contracts: the central parts of my practice. I am often asked to prepare a written contract my client wants to send to a contract partner or to revise a contract they received from their contract partner. For these situations – there are two words that will help save my clients save money: Term Sheet.
Term Sheet (it may also be called a Letter of Intent, Memorandum of Understanding, or other names) contains the essence of the agreement between the involved parties. The term sheet is written in basic language that emphasizes important points of the agreement to all parties involved. The idea is that the decisions-makers will work out the key points of their agreement and write them down on a Term Sheet. This is the agreement without all the legal provisos, conditions, and boilerplates. A term sheet is a page (or two) in length, and is the most efficient way for contract partners to highlight the points that are significant to include within the agreement. Along with the terms, the contract partners should include specific directions for the attorney who is tasked with preparing the formal written contract (often, myself).
Best of all, a Term Sheet will help you save money and time:
You can prepare a Term Sheet on your own without calling the attorney.
For negotiated business contracts, most attorneys charge based on their time involvement. The more you can do to delay calling the attorney, the more you can save on legal fees. Instead of paying your attorney to prepare a formal written agreement, you should first focus on nailing down the key points of your agreement. Use the Term Sheet to keep track of the proposals and counter-proposals in the negotiation. It doesn’t have to be pretty. Then, when the key points are settled, you can call in the attorney to address the details and prepare a formal written contract. This should cut down the number of times the attorney has to update the written contract to keep up with the negotiations.
Negotiation by Term Sheet is more efficient than negotiation by legal hand grenade.
A “legal hand grenade” is the complete, formal written contract that you lob over to your contract partner with the hopes that he or she will just sign it. He or she will not just sign it. Instead, your contract partner will pay his or her attorney to carefully read it, find all the one-sided provisions that you hoped to slip by, and then revise the agreement to make it more favorable to your contract partner. Then, the revised written contract will be lobbed back over to you, you will pay your attorney to carefully read it and revise it, and the cycle continues. Instead of lobbing legal hand grenades, using a Term Sheet allows the contract parties to spend their time focusing on negotiating the key points of the agreement.
Your Term Sheet is the best roadmap your attorney can have.
It’s your attorney’s job to understand the agreement that you’ve made and make sure that understanding is clear in the formal written contract. Better then you telling the attorney what you want the agreement to be is giving your attorney a Term Sheet that outlines what the agreement is. This will help your attorney understand the agreement quickly and avoid wrong turns in drafting the written contract.
If you want to minimize your attorney’s fees, don’t ask me to prepare a written contract that you will use as an opening proposal for negotiating your agreement. That’s going the long way around the mountain. Instead, negotiate the key points of your agreement, jot those down in a Term Sheet, and then give the Term Sheet to me. Tell me, “This Term Sheet contains the key points that we’ve negotiated. Please prepare the formal written contract that reflects these terms.” We’ll both be happy, and it will save you money.