In this blog post, Atul Surekha, a student pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, describes the best ways to improve contract negotiation skills.
Before commenting on the above-captioned subject we must know first what is a contract, types of contract and essentials of a valid contract.
As per section 2(h) of Indian Contract Act 1872 “contract means an agreement enforceable by law”.
[A].Essential Elements of a Valid Contract are as follows:
- Offer and Acceptance: There must be two parties to an agreement i.e. one party making the offer and other party accepting it. The terms of the offer must be definite and acceptance of the offer must be absolute and unconditional.
- Intention to Create Legal Relationship: There must be an intention to create a legal relationship between them.
- Lawful Object: The object of the agreement must be lawful. The object must not be illegal, immoral or opposed to the public policy.
- Capacity to Contract: The parties to the agreement must be capable of entering into a valid contract. Every person is competent to contract if he/she is of the age of majority, is of sound mind and is not disqualified from contracting.
- Lawful Consideration: Consideration means something in return. An agreement to be enforceable by law must be supported by consideration.
[B].Classification of Contract
- Voidable Contract: An agreement which is enforceable by law at the option of one or more of the parties but not at the option of others is a voidable contract.
- Void Contract: A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable.
- Un-enforceable Contract: It cannot be enforced in the court of law because of some technical defect such as absence in writing or the remedy has been barred by lapse of time.
- Implied Contract: It is inferred from the acts or conducts of the parties or course dealings between them.
- Express Contract: If terms of the contracts are expressly agreed upon at the time of formation of the contract, the contract is said to be an express contract.
- Quasi Contract: A quasi-contract is not a contract at all.
A Contract Negotiation is important as most of us are involved in negotiating in some form or other on daily basis. The purpose of contract negotiation is seen direct if you can get your interest achieved through an agreement. We need to know how our behavior affects others.
Next thing is that everyone has its unique preferred way of communicating and it may not be my way. Effectively skilled negotiators are those who can change their communication style to meet the needs of the listener.
It is said –
“The cleaner you are on your interest and goals, the better chance of success increases”
One of the most crucial skills for contract negotiation is that one must learn as much as he/she can about the people with whom he/she going to be negotiating i.e. try to know their negotiating skills, their backgrounds, their interest. Little things do not mean a lot; they can mean everything.
These are the Basic Rules One Must Follow in Order to be a Good Contract Negotiator:
- Frame your negotiation around one or two key points.
- Keep the contract negotiation as basic as possible by framing and reframing, to keep things on track and reach agreements more efficiently.
- Effective negotiators know not only when to walk away but also know how to walk leaving the relationship intact.
- Prepare options for mutual gain. Be creative.
- Listening is the most powerful negotiation skill. It will help you learn where your interests are shared with another side, where they are in opposition.
- Last but not the least, always put your negotiated agreements in writing.
Contract Negotiation In Case of Commercial Lease Contract
Lease means giving an exclusive right to the user to use a particular place for a period of time for rent.
- Length of the Lease
The first thing which is important in the case of a commercial lease contract is the length of the lease. In the case of small businesses, a term of one year or two year is usually best for small business with an option to renew included.
However, if the business is location dependent i.e. a restaurant, then the businessman will want security. So, a longer term makes sense.
For location based business, which a lessee will acquire from the lessor on rent, will negotiate for the length of the lease because it won’t be possible for a business to shift from one place to another in a short span of time if the location-based business is running successfully.
- The Rent on which the Lessee Can Negotiate with the Lessor
The second thing is the rent on which the lessee can negotiate with the lessor. Before negotiating on the above parameters, the businessman (lessee) must know what are the going to be costs in the area so that he/she can negotiate with the lessor.
- The lessor will want to increase the rent for each additional year. On this clause, the lessee (businessman) can negotiate with the lesser so that, rent doesn’t get increased each year.
One of the most important things which must be looked into while entering into commercial lease agreement is the look into hidden costs. In the Gross lease, all costs are included, while in the Net lease, there are costs in addition to rent. Many commercial leases make the tenant responsible for costs such as maintenance etc.
So, contract negotiation must be done with respect to the above clauses.
- Other things which can be looked into contract negotiation is that a lessee can ask for some favorable clause, e.g. a clause allowing the lessee to sublease the property, the property can be important should your business suddenly relocate or close.
- One of the most important thing which can be negotiated is that the businessman might want a clause that restricts the landlord from renting out any other unit on the premises to a business similar to my business.
- The other things on which contract negotiation can be done i.e. the lessee might negotiate with the landlord to be responsible for making improvements to the property before the businessman moves in.
- Last but not the least, termination clause should be read carefully and some kind of relief must be prayed from the landlord in case there is the violation of some rules and regulations, as mentioned in the contract which will lead to termination of the contract.
Contract Negotiation in Case of Employment Contract
- Before entering into contract negotiation, one must familiarize himself/herself with the company itself as well as the range of the salary and benefit options on offer.
If Finance is the life and blood of any organization then, human resource is the heart and soul of any organization.
When a candidate is going for a job, he or she is a salesperson promoting a product as it is up to the candidate that the product is valuable, high quality and superior to anything a competitor could offer.
For Researching the Salary:
- Look at the range of packages offered for similar position in the job pages.
- Ask for advice from people in the professional and personal network.
- If a candidate is a member of a union or institute then they will have information on acceptable salary ranges of the profession of the candidate.
- If a candidate is successful in his/her negotiation then he/she must ask for the agreed terms and condition confirmed in writing as early as possible.
As per the Employer, the Various Ways of Contract Negotiation are as follows:
- The employer may have data regarding the present salary of a professional which other companies are offering.
- The employer may not grant more salary but, may grant more perquisites to an employee.
- The employer might have many bright professionals who are ready to work at less salary in comparison to someone.
- It might so happen that an employer might want much from his employee and may increase the salary in future after keeping the track of employees work since in many advertisements it is mentioned that salary will be negotiable and salary will be not a bar for suitable candidates. Therefore, on the various parameters, the salary is offered and negotiation is done.
Contract Negotiation In Hire Purchase Contract
Hire Purchase Agreement is an agreement where the hirer can purchase the goods from the owner by making a part payment and rest in installments. A Hirer shall become the owner of the goods after clearing the last installment. In Hire Purchase Contract, there are two parties, basically, Owner and Hirer.
There are Various Points of Contract Negotiation in Hire Purchase Contract:-
- The hirer may negotiate with the owner of goods regarding the tenure of the hire-purchase agreement.
- The hirer may negotiate with owner regarding the interest rate charged while making the installment.
- The hirer may research the details of another owner of goods who are providing same goods at low monthly installments at low-interest rate or he can ask his owner to charge accordingly.
- The hirer may ask for some special discount while making a down payment to the owner.
- The hirer may ask the owner to bear some cost like insurance cost since these costs are incurred by hirer in most cases but still he can request the owner to bear the cost of insurance.
- The hirer can also ask from the owner for extension of time in case the hirer fails to repay the installment on time.
- The hirer can also ask the owner not to charge fines and other expenditure on failure of installment or may charge a very nominal amount.
- The hirer may ask the owner of goods to provide some technical and advice if required free of cost to him during the tenure of the agreement.
Additional Read: Negotiating EPC Contracts
Contract Negotiation helps the person to ensure that his demands are being fulfilled and his services are falling in the right hands. It’s not just necessary to deliver a service, but it is also necessary to deliver the service at the Right place along with the Right people.
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