The beginning of a contract is something that can make your eyes glaze over. In many contracts you read, you will not even completely know what is going on in the first paragraph. Have you ever read a contract that looks like this at the beginning:
THIS LEASE AGREEMENT (this “Lease”) made and entered into and made effective this____ day of _____________, 2013, by and between LANDLORD, L.L.C., a limited liability company (hereinafter referred to as “Owner”) and TENANT, L.L.C., a limited liability company, (hereinafter referred to as “Tenant”).
WHEREAS, Owner and Tenant desire to enter into a Lease Agreement and memorialize the terms of the lease between Owner and Tenant.
NOW, THEREFORE, the parties agree as follows:
If a contract is supposed to be the written representation of an agreement between two parties, how is this the beginning of that? Why does it need to be so complicated? Does it even matter?
The introduction of a contract is important because it outlines the key players, the dates, and the purpose of a contract. Without this, the terms may not make sense. Let’s break down what is going on in the beginning of a contract before you get to the terms. Technically, these parts are not “binding” as they are not part of the contract, but the contract is designed to be read as a whole and this is the opportunity to explain what brought the contract about and make sure the contract is self-contained as it should be.
There are three Primary elements that make up the beginning of a contract:
The title describes the document. When choosing a title for a contract, you are not looking for a snappy title, you are looking for a concise description of the agreement without being confusing. The title should describe the transaction in the contract, but avoid the use of party names. Keep in mind, other contracts may refer to this contract one day. Or worse, the contract could become public record in litigation. You want it to sound professional and clear. It is common to use the word “Agreement” instead of “Contract” in the title. This is more out of common use and a sounding of professionalism than anything else. You can use “contract” if you like. “Lease Agreement” and “Lease Contract” both mean the same thing. One is juts more common than the other.
The introductory paragraph is the beginning of the paragraph. It sets the tone. Very much like the opening paragraph of a blog post or a good novel, it is designed to bring you into the contract. The introductory paragraph should state: (1) the type of agreement, (2) the date of the agreement, and (3) the parties to the agreement.
Type of Agreement
Sometimes in contracts, redundancy makes sense. The title of the document should describe the type of transaction. Often in the opening paragraph you will use the title or a description of the type of agreement.
The parties to a contract should be the legal entities or people who are actually involved in the contract. Make sure you have the proper legal names of the parties in the contract. If one of the parties is using a DBA, you want to use the legal name of the entity, not the DBA. You can define the party by the DBA name. If you have an entity for your business, your entity should be listed in the introductory paragraph, not yourself.
If you personally are named in a contract, you will have a difficult time going backwards and limiting your liability to your business later. This is just as important as signing the contract properly.
The date of a contract is important. The date should be the effective date, not necessarily the date of signature. When did the parties intend for this agreement to begin. Legal can slow deals down, but the parties agreed to a certain date. Make sure that is the date of the contract. If you are working with a lawyer, let the lawyer know when the contract should be effective. You do not want several different dates floating around for when this contract may have been effective. Use the date in the introductory paragraph and reference it later. You only want one date in your contract, unless you intend for the contract to be effective on a date different than the date in the introductory paragraph.
The introductory paragraph used above does all of these things. The thing is, it isn’t in English. You want your contract to be in English. So, for the example above, something like this would be effective:
This lease agreement is dated [DATE], and is between Landlord, LLC a [State] Limited Liability Company (“Landlord”) and Tenant, LLC, a [State] [Entity] (“Tenant”).
Notice how the use of the term “lease agreement” is not capitalized in this sentence. This is because it is clear it is referencing the current agreement. It is not a defined term in the contract and does not deserve to have capitalized letters. Further, using all capital letters (as in the example above) would be distracting as well. In the example above, the name of each party should be their legal name with a description of the state of formation and type of entity of the party. An individual should have a state of residence listed. Use standard date formatting for the date. A contract is “between” two parties and “among” three or more.
The recitals are the terms that traditionally are preceded by “Witnesseth” or “Whereas” (or as shown in the example above, sometimes both). This isn’t english. It isn’t necessary, and it isn’t binding This isn’t necessary.
Recitals are for background information that is important to the contract.
Recitals help explain the terms of the contract. Recitals explain what lead up to the agreement and why it makes sense.
There are four primary types of recitals: (1) those that describe the circumstances leading to the agreement; (2) those that set out what the parties desire from the agreement; (3) those that describe other agreements entered at the same time as the contract in question; (4) recitals that lead into the body of the contract.
It is not necessary to have all of these recitals in any given contract. In simple contracts, there may not be a need for recitals at all, or only a need for a few. Some contracts simply have the lead in recitals and no others. In the example text above, that is the “Now, Therefore” language. A better way to write a lead-in recital would be to simply say: “The parties therefore agree as follows:” This is more concise and it leads into the body of the contract.
Do not overdo it on the recitals. Only use what is necessary to explain the agreement.
The beginning of a contract is important. Like the other aspects of a contract, it is important to understand what everything means, so you can decide whether you need it in your contract.