The Road to Resolution:
Tips on Drafting a Solid Settlement Agreement
By Blanca Greenstein, Esq. & Nadia Hoosien,Esq. with Greenstein & Associates
In today’s fast paced society, settlement agreements have become a common alternative to filing an expensive lawsuit. While settlement agreements can be much less expensive, they are not always fail proof. The most essential concepts to define when drafting a solid settlement agreement are as follows: (I) who are the key players to the agreement; (II) what is the dispute being resolved; (III) what property is involved, if any; (IV) what are the resolution terms; (V) what period of time will cover the resolution; (VI) what are the consequences in the event of a breach by either party; and (VII) who will pay the attorney’s fees in the event of a breach. Finally, it is always important to remember that each settlement agreement is unique, and the key to achieving a textbook settlement agreement is mapping out the road of the resolution beforehand, while drafting with precise detail and clarity.
(I) The Key Players
It is important to define who the agreement will cover. Please always keep in mind that the Court will usually construe ambiguities against the drafter (the person who wrote the agreement). Therefore, best practice is to define the key players in the agreement with precise description and detail. Example: This agreement is only between Tom Smith and Susan Major.
(II) Identifying the Dispute
Summarizing the essential dispute which gave rise to the agreement is an important, component of a solid settlement agreement. In this section of the agreement, terms and definitions should be defined in a specific fashion. Example: Tom Smith and Susan Major are resolving a dispute involving a loan that Susan extended to Tom on May 1, 2014. They have decided that Tom will repay Susan $5000.00 in full and final satisfaction of all debts. This summary is important in the event a future breach or disagreement between the parties arises and to determine if the future dispute is or is not covered by the pre-existing agreement. Example: In 2016, Susan Major claims that Tom never finished a paint job on her house. Would the 2014 agreement apply? Probably not as it clear from the 2014 agreement that the 2016 dispute is completely unrelated. The more specific you are, the more everyone is protected.
(III) When Property is Involved
While not all settlement agreements will involve real property (aka real estate), it is important to note how to properly identify the property concerned. In defining real property, both the property address, as well as the legal description of the property are necessary. Example: This agreement applies to property located at 123 ABC Street, West Palm Beach, Florida 33401. Thereafter, you would state the legal description of the property, which can be found on the deed. Example: Lot 1, Block 1 of ABC Terrace, according to the Plat thereof, recorded in Plat Book 1 Book 2, Page 3 of the Public Records of Palm Beach County.
The agreement must also comply with the Statute of Frauds which requires any agreement involving property to be in writing; to contain the essential elements of the agreement; to have two attesting witnesses; and be signed by the party to be charged. Additionally, it is important to state what governing law will apply to the agreement. When dealing with property, the common law will apply, versus the sale of goods, in which case the Uniform Commercial Code, Article 2, will govern. Example: The governing law of the Uniform Commercial Code, Article 2 will apply to the agreement entered into between Tom Smith and Susan Major.
(IV) Resolution Terms
Resolution terms should be drafted very concisely. This is important because resolution terms mirror the objectives of both parties in entering into the settlement agreement. Here, all parties involved should carefully define, and understand the consequences of different words. While perhaps obvious, it is imperative to understand the different legal consequences of words such as “must” and “may” for example. Example: The $5000.00 loan negotiation should be spelled out as “Five thousand dollars” as not to be confused with $500.00 (Five hundred dollars).
(V) The Period that will cover the span of the resolution
While often and easily overlooked, the period of time that will cover the resolution must be drafted with precision. Here, keep in mind that it is important to examine what time period is most acceptable by all parties. Consider for example the difference between “a reasonable time”, and “one year”. As previously mentioned, the better practice is always with specificity. Example: This agreement is only between Tom Smith and Susan Major, and shall terminate within two (2) years of the effective date (date entered into between the parties).
(VI) Consequences of Breach
This section of the agreement should carefully state what consequences will result in the event of either party breaking its terms. Possible consequences include monetary damages, the definition of what would constitute a minor or material breach and whether the breaching party is entitled to a period of time to repair the breach. Drafting unambiguous consequences of a breach will avoid future disagreements of either party’s responsibility, and allow the Court to enforce those consequences more easily. Example: If either Tom Smith or Susan Major breach this agreement, the non-breaching party is entitled to an award of $5000.00.
(VII) Attorney’s Fees
Finally, you need to include a clause concerning who will pay attorney’s fees in the event of a breach. While attorney’s fees can be considered a part of the consequences of a breach, they are so significant that it warrants their own section within this article. Therefore, it always a good idea to include who will cover the attorney’s fees and costs in the event of a breach before it happens. Example: The prevailing party shall be entitled to collect from the other party its reasonably attorney’s fees and costs incurred in enforcing this agreement.
A solid settlement agreement can encourage healthy negotiations and promote future business endeavors. When drafting your settlement agreement, refer to the above listed concepts that will help guide you in navigating a road to a solid and successfully concluded resolution.