Articles

UNDERSTANDING CONTRACTS AND WHY THEY MATTER

Introduction

Contracts are the backbone of most personal and business transactions. Whether you’re hiring someone, leasing property, entering a business partnership or engaging a service provider, a contract defines what each party brings to the table and what happens if things go wrong.

At B.I.K Advocates LLP, we often meet clients facing legal challenges that could have been avoided with a well-drafted and clearly understood contract. This article breaks down what contracts are, why they matter, and how to engage with them confidently and responsibly.

What Is a Contract?

A contract is a legally binding agreement between two or more parties. It outlines each party’s rights, responsibilities and obligations and is enforceable by law. Contracts can be written, verbal, or implied though written agreements are always preferable for clarity and legal proof.

Once all parties agree to the terms and exchange something of value such as goods, services, or money, the contract becomes binding and each side is expected to honour their end of the bargain.

Key Elements of a Valid Contract

For a contract to be enforceable in Kenya (and most jurisdictions), it must include the following five essential elements:

• Offer and Acceptance: One party proposes terms and the other agrees to them.
• Consideration: Something of value must be exchanged—such as payment for services or delivery of goods.
• Intention to Create Legal Relations: Both parties must intend for the agreement to be legally binding.
• Capacity: The individuals or entities must be legally capable of entering into a contract—typically of sound mind and legal age.
• Legality of Purpose: The subject of the agreement must be lawful.

Why Contracts Are Important

Contracts play a critical role in managing expectations, clarifying deliverables and protecting parties in case of disputes. Here’s why you should never treat a contract as just “paperwork”:

• Clarity: Contracts define what is expected of each party, including timelines, responsibilities, and deliverables.
• Protection: A well-drafted contract protects your rights and outlines remedies in case the other party fails to meet their obligations.
• Accountability: With defined terms and consequences, contracts hold everyone accountable to their commitments.
• Conflict Prevention: By anticipating issues and resolving them through clear terms, contracts reduce the likelihood of disputes.
• Evidence: Should legal action become necessary, the contract serves as documentary proof of the agreed terms.

Types of Contracts You Might Encounter

Contracts take many forms, and understanding which one you’re entering into is crucial. Here are some common examples:

• Employment Contracts
• Lease or Tenancy Agreements
• Service Agreements
• Partnership Agreements
• Sales Agreements
• Non-Disclosure Agreements (NDAs)

Clauses to Watch Out For

While every contract is different, there are some common clauses that deserve careful review:

• Payment Terms- This clause specifies how and when payments will be made. Look out for:
• Termination Clause- Details how the contract can be ended and by whom.
• Dispute Resolution Clause- Outlines how conflicts will be resolved if things go wrong.
• Confidentiality Clause - Prevents parties from disclosing sensitive information.
• Force Majeure Clause- Protects parties when unforeseeable events (e.g., pandemics, natural disasters, political unrest) make contract performance impossible.
• Limitation of Liability Clause- Limits the amount or type of damages a party can claim if the other breaches the contract.
• Governing Law and Jurisdiction Clause- Specifies which legal system governs the contract and where disputes will be resolved. Particularly important for contracts involving parties in different countries.

Common Contract Mistakes to Avoid

1. Failing to Read the Entire Contract
2. Signing Under Pressure
3. Relying on Verbal Promises
4. Not Getting Legal Review
5. Ignoring Amendment Procedures

How B.I.K Advocates LLP Can Help

At B.I.K Advocates LLP, we offer tailored legal support to ensure your contracts are fair, enforceable, and aligned with your goals. Our contract-related services include:

• Drafting & Reviewing Contracts
• Negotiation Support
• Dispute Resolution
• Contract Advisory & Training

Conclusion: Don't Just Sign—Understand

A contract isn’t just a formality; it’s your safety net. Whether you're an entrepreneur, employee, landlord, service provider, or investor, contracts help define and protect your interests.

At B.I.K Advocates LLP, we believe in empowering clients with the knowledge to make informed decisions and avoid common legal pitfalls. If you have questions about a contractor need help drafting one, don’t hesitate to contact us for professional guidance.