Some of the most frequent questions we get from nonprofits are related to contract issues. This makes sense considering that contracts affect virtually every part of an organization. As a nonprofit leader, you have a contract (whether written or not) with every single vendor, service provider, donor and client related to your organization.
Before we talk more about contracts, let's define them. The venerable Black's Law Dictionary says that a contract is “An agreement, upon sufficient consideration, to do or not to do a particular thing.” An agreement is reached upon an offer, followed by acceptance of the offer.
An enforceable contract must be based on consideration. That doesn't mean being polite: It's a lawyer word for something given in exchange for goods or services. Consideration is most often money, but it can be personal property, real estate, a counter-promise to perform or really, any benefit conferred upon the other party to the contract.
Contracts Are Important to Nonprofits
Contracts are important to all organizations, including nonprofits. The types of contracts a nonprofit can expect to encounter include:
- Employment contracts
- Contracts for independent contractors
- Leases for physical facilities
- Construction contracts
- Contracts regarding intellectual property, such as trademarks
- Internet contracts, for websites and emails
- Social media contracts
- Grants, which are contracts to use money to particular projects or in specified ways
- Agreements for the donation of goods and services to nonprofits
Let's explain more about contracts with an example. Suppose Joe Donor owns two adjacent lots. One of them is vacant. The other used to be a gas station, but it went out of business. The building and pumps are in good shape, but Mr. Donor is done with negotiating leases. He wants to donate both lots to a nonprofit. The nonprofit is interested. Here are some of the issues the nonprofit should consider and include in the final contract
A Bare-Bones Contract
This part is easy enough. Mr. Donor is giving the nonprofit the lots. In exchange, the nonprofit will accept the lots. It will also give Mr. Donor a receipt showing the value of the transaction so that Mr. Donor can write off the donation when he files his income tax returns.
Fleshing Out Contracts
This contract, although sufficient under the law, should contain additional provisions so that the contract is clear to both parties and expectations are aligned. Here are some questions to ask and provisions to consider:
- Does Mr. Donor represent that he owns the lots free and clear? If not, he should state the debt on them. In particular, are taxes current? Are there are liens or mortgages on the property?
- Who will pay for closing expenses such as title insurance, surveys and attorney's fees?
- Should the nonprofit require, as a condition to the contract, third party valuation of the lots? The nonprofit must make sure that it is accurately representing the fair market value of the lots to Mr. Donor - and to the IRS.
- Should there be a professional evaluation of environmental concerns? One of the lots used to be a gas station. Residual pollution might affect its value and use.
- What happens if the nonprofit, after environmental testing, decides it doesn't want the gas station lot. Will the contract then apply to the other lot, or is it a package deal?
- Should there be conditions subsequent to the contract? Suppose the expert who says the gas station passes environmental muster is wrong. The nonprofit doesn't want to be saddled with that property. Owning the lot could expose the nonprofit to liability. If there are environmental problems in the future, can the nonprofit require Mr. Donor to take the property back?
As you can see, there are many things to consider when drafting contracts. And this example discusses just one of the many areas in which nonprofits need contacts.
Our Services Regarding Contracts
Our firm provides many services relating to contracts. We help to negotiate contracts, draft them, and review those drafted by others.
We regularly negotiate contracts with vendors and service providers on behalf of our clients. We are very comfortable with having those discussions and working to obtain the most beneficial contract for our clients.
Often, nonprofits are given an already-prepared contract by a vendor or service provider, but sometimes not. And clients/service recipients rarely have their own contracts. In these situations, we can draft the appropriate agreement.
We work with you to understand all the specific goals of your agreement and work to draft a strong, but fair, contract for you. We can usually do this on a flat-fee basis.
Got a contract from a vendor or service provider but have no idea what it means? We can help. We can review the contract, explain it in simple terms, and highlight sections that are particularly important or are potential points of negotiation, often on a flat-fee basis.
Let Us Help You
Mission Counsel's law practice is based on our desire to help nonprofits. If you need help negotiating, drafting or reviewing a contract, we would like to help you. We provide accessible, affordable, and knowledgeable legal counsel to nonprofit organizations, large or small. Please schedule a free 15-minute call with us here or give us a call at (816) 368-1181.