Best Way to Manage Risk With Compliance with Law Provisions

This contract tip is about drafting compliance with law provisions. These provisions typically say "Each party shall comply with all Applicable Laws." Then the term "Applicable Law is defined in the definitions section. 

Here are four things to think about with your compliance with law provisions.

1. Compliance with law provisions are not one-size-fits-all - You should be clear about the company’s risk tolerance and standards of compliance. You may need stronger compliance provisions for a specific counterparty and deal.

2. Don’t start with extreme demands - These provisions often end up mutual. Don’t expect others to agree to what you won’t.

3. More general “comply with applicable law” provisions are okay sometimes - It is okay to use “comply with applicable laws” in the rep and warranty rather than list each law by name. But check with your compliance team first. They may have different company-specific requirements.

4. Don’t inadvertently subject your company to inapplicable laws - Be careful not to voluntarily agree to comply with a law that does not apply. If you aren’t sure, clarify that your compliance is “to the extent applicable.” Another option is to agree to comply with “the principles in” the law instead of the law itself.