Hashish corporations transfer 1,000,000 miles an hour. Many hashish corporations don’t spend almost sufficient time specializing in the “fundamentals,” akin to company governance and getting issues in writing (for extra posts on why handshake offers are unhealthy, see articles linked on the backside of this publish). One other space the place many hashish companies want some enhancing is in dealing with contract approvals.
Contract approvals are precisely what they sound like: a celebration to a contract can not do one thing with out the opposite occasion’s consent (often prior and written approval). I like to consider hashish contract approvals as falling into one in every of two buckets: contract approvals associated to a contract, and contract approvals which are unrelated or considerably associated to a contract.
With respect to the primary bucket, these sorts of issues are typically pretty apparent. A contract often would require one occasion to behave a sure manner, and the opposite occasion might want to consent to departures from these actions. One fairly widespread approval is the approval of a property lessor to an task or sublease. These generally is a enormous headache for consumers in M&A offers, as I’ve mentioned earlier than. The underside line is that any time a hashish enterprise desires to take any sort of motion that relates in any option to a written contract, it first must evaluation the contract.
The second bucket of hashish contract approvals generally is a bit tougher. These relate to actions which may be unrelated or solely considerably associated to a contract. For instance, a lender could require {that a} borrower not safe third occasion financing even on issues unrelated to the lender’s mortgage with out the lender’s prior written approval.
This second bucket is the place issues typically get bushy. Many hashish companies put little or no thought into unrelated current obligations, however they completely ought to, and a great hashish legal professional will have the ability to assist loads. Counsel will — relying on the deal sort — ask their consumer for related paperwork to evaluation to find out whether or not any contract approvals are required to get the deal finished.
If a hashish enterprise doesn’t have authorized illustration and isn’t very diligent, there’s a great likelihood it’s going to do issues with out securing required contract approvals. Typically, this may result in speedy and direct claims for damages by the opposite occasion to a contract. For instance, subleasing property with out the lessor’s prior written consent will typically result in a breach declare and presumably even lease termination.
Even the place an unapproved motion doesn’t result in damages and a lawsuit, it nonetheless offers the opposite occasion to a contract leverage to say breach and kick off a course of that’s typically an enormous headache. It’s additionally an excellent option to upset somebody, and to lose face and belief going ahead. These points can typically be resolved by merely studying a hashish contract and going by way of the motions previous to taking an motion.
Listed here are these posts I discussed about why handshake contracts are a nasty thought: