Make approval policies and laundry lists readable

If you ever assessed whether a corporate action was included in a long list of required approvals between the signing and closing of a transaction (a so called “laundry list”), you will probably have re-read the list two or more times to make sure the issue was on it (or not). This blog post, I discuss a new and efficient way of enumerating items in a contract.

If a contract provision contains two or three lengthy phrases or more than three list items, it is recommended to break the paragraph and create subparagraphs. A ‘lengthy phrase’ would probably span over more than two or three lines whereas ‘listed items’ should be more than a few words. (In other words, do not create an enumeration if an inline listing would clearly suffice.) The dividing line is a matter of taste, driven by the criteria of readability and avoidance of ambiguity. It is perfectly appropriate to further subdivide an enumerated paragraph into subparagraphs.

Many lawyers would produce an illegibly lengthy list of matters that are subject to approval, failing to introduce a logic in its order, and ending up in sometimes over 26 enumerated items. The reader of the contract is then stuck in interpreting whether or not something must be deemed to be covered by the enumeration.

Because of the limitations of indenting html texts, I insert the following example as picture:

Enumeration Or Laundry Lists In Contracts Weagree Weblog Lists Presentation

A salient detail in the above example (which is usually inserted in M&A transaction agreements where signing and closing are split) is that the model clauses used by a lawyer from a law firm will start the list with matters that would frustrate the purpose of a transaction fundamentally (and would inevitably constitute abusive behaviour by the seller); whilst the in-house legal counsel and business managers will probably not even consider taking those first listed actions. The latter group of persons actually use the laundry list in order to review if entering into a business contract or if maintenance investments in assets (capex) requires purchaser’s approval.

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