What Does “Compliance with Laws” Mean in a Contract?
A representation or covenant that a party will conduct activities in accordance with applicable laws and regulations.
Detailed Explanation
Compliance with laws provisions require parties to follow applicable regulations. This seems obvious but creates specific obligations and liability allocation. Which party bears risk of regulatory changes? Who's responsible for compliance costs?
These provisions often accompany indemnification—if your non-compliance causes problems for the other party, you cover their losses. Review how broadly 'applicable laws' is defined.
Example in a Contract
“Each party shall comply with all applicable federal, state, and local laws, regulations, and ordinances in performing its obligations under this Agreement. Contractor shall indemnify Client for any claims arising from Contractor's non-compliance.”
Why It Matters
Compliance provisions allocate regulatory risk. If regulations change or enforcement increases, who bears the cost? Understand what laws apply to your activities and whether you're taking on compliance obligations for the other party.
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