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A Note on Free Legal Documents

Recently, we were asked to review an agreement that a client had obtained from a free online service. 

There are several providers of these documents online and they offer hundreds of documents.

The first danger is whether you have selected the correct document. If you are going into business with someone it may be appropriate to have a partnership agreement. However, what you may actually need is a shareholders agreement. This may seem like a technical distinction but unfortunately in law it is the technical distinctions that matter.

Selecting the wrong agreement can render the bulk of your contract, if not the whole thing, invalid. If that happens then you have lost the ability to ensure you determine how the terms of your agreement and it will be left to a judge to decide if you end up in a dispute. 

The next danger is the structuring of clauses. The template agreement we reviewed had several clauses that were advantages to the other party to the contract and not what we would recommend to our clients. This impacts on your rights in the commercial arrangement. For example, do you really want the other side to be able to cancel an agreement on as little as 7 days' notice?

Another issue we noticed was that the agreement needed to include some specific language that dealt with particular industry specific issues. In our experience there are very few clients who will not have a need for some degree of industry specific content in their agreements. 

The next consideration is the jurisdiction that the agreement is based in. In the one we reviewed it stated it was a NSW agreement when the client was based in Queensland. This is a relatively minor issue but would make things a bit more difficult for the client if a dispute were to arise. 

On the extreme end of this issue is when the agreement is for a whole different country. Many of the free legal document providers are based in the USA meaning the agreements are structured in accordance with their laws. Australian agreements differ quite substantially from American agreements. There is some significant divergence between Australian and American contract law rendering American based documents almost completely useless in an Australian context. 

We could go on and on about all the issues that arise when you use a free template document. At the end of the day, having a lawyer draft an agreement for you can actually be a relative cheap exercise. That's especially the case as compared to the costs that would be incurred if a dispute arises because of a poorly drafted agreement. 

Liam Young