4 Tips for Sewing Up Legal Loopholes

Loopholes are the secret key to unlocking the mysteries of The Law. At least that’s what many people think. If something isn’t fair, it’s because of some loophole. 

When you stop and think about it, the word even sounds nefarious.  LOOP. HOLE. It’s a linguistic hangman’s noose that lassos you and cuts you as it throws you to the ground or tosses you down a deep dark hole of inequity filled with the bones of others who gone before you. Cue the spooky music and hang some garlic.  

I realize that Halloween is coming, but let’s shed some light on the topic and do some loophole ghost busting.  I’ve always hated that word because a “loophole” is nothing more than an ambiguity that allows one party to disappoint the expectations of the other.

What that means for you when it comes to business contracts is that you can eliminate loopholes with these four simple steps:

1.  Think the deal through.  Too many businesses enter into contracts like a couple of teenagers who elope because they’re in love. You want to be together. That’s great. But to make the business marriage work requires thinking through the nooks and crannies of the details BEFORE you consummate the deal so that those negotiations can be memorialized in your contract. Anticipate what could go wrong to avoid surprises and fuzzy language that allows one party to disappoint the other.

2.  Evaluate contract language for ambiguity. Loopholes are all about ambiguities. All too often words and phrases don’t always mean what you think they do or they mean different things to different people. That is precisely the type of potential misunderstanding that needs to be cleared up in advance. Eliminate wiggle room, and you sew up the loopholes.  The only way to do that is by asking questions and discussing the issues. Don’t assume that the contract language always speaks for itself.

3.  Ask for clarification. The goal of any contract should be to achieve a meeting of the minds, an agreement of how the transaction works. If you don’t understand something, or it's fuzzy or doesn’t reflect practical realities, say something.  Asking for clarification engages the other side in joint problem solving and is a non-adversarial way of achieving your goal of achieving clarity. Too many small business owners are embarrassed to ask questions, fearing they will look silly. Nonsense! What’s really silly is getting tripped up by an avoidable surprise.

4.  Get an independent point of view. After a marathon negotiating session it’s easy to believe that you think you know what the other side is saying, or has presented on paper. But 12 or 18 months later when the language is put to the test it might not be so clear anymore. That’s why it’s always good to get an objective, independent point of view from someone who has not been involved with the deal and knows nothing about it. You’ve done a good job eliminating loopholes if they can read the contract and accurately describe the transactions, and not find any ambiguities.

Follow these four steps, and you won’t have to whistle in the dark anymore. If you manage expectations by eliminating predictable surprises, you eliminate loopholes and will own the night.

Hanna Hasl-Kelchner is a business legal strategist, author, speaker and trainer who teaches and coaches business people on how to avoid lawsuits.  She is the author of The Business Guide to Legal Literacy: What Every Manager Should Know About the Law and forthcoming Champions: Knock out strategies for health, wealth and success from today’s leading experts.  Follow Hanna on Twitter @nononsenselawyr. Subscribe to this blog’s RSS feed to get the latest updates.