7.1 Definitions and defined terms – best practice rules

Defined terms and definitions are a powerful tool to improve the readability of a contract. At the same time, it is a contract drafting discipline in which almost invariably mistakes or drafting flaws are found. Thanks to M&A practice, several best practice rules can be identified for drafting and using definitions and defined terms. Those principles are discussed in this section.

One of the final drafting steps before circulating a first-draft document (or a mark-up) is to check whether all defined terms are indeed used. If a term is defined but not used, it may trigger the inclusion of contract clauses or subjects that the drafter probably tried to avoid.

Similarly, the drafter should verify that there are no terms that are used but never defined. This error occurs when a definition is deleted but not all references to the term are removed, or when text containing a defined term is copy-pasted from another document (without copying the definition).

My terminology. In the following best practice principles, a strict terminology can be identified: definition refers to the description, or object, of what is defined; defined term refers to the (capitalised) word or words chosen to refer to the definition. In common parlance, both are somewhat interchangeably referred to as definitions. The body text refers to the preamble, warranties, conditions, covenants and contract clauses other than the definitions article.