Reasonable best efforts: Overview, definition, and example
What are reasonable best efforts?
Reasonable best efforts refer to a contractual standard requiring a party to take all commercially reasonable actions within its capacity to achieve a specific goal or fulfill an obligation, without requiring extraordinary measures that could cause undue hardship or financial burden. This standard is commonly used in contracts to balance a party's commitment to act diligently with the practicality of their limitations.
For example, a seller in a merger agreement might agree to use "reasonable best efforts" to secure regulatory approvals necessary to close the transaction.
Why are reasonable best efforts important?
Reasonable best efforts are important because they establish a clear expectation that a party will act diligently and in good faith to fulfill their contractual obligations. This standard allows flexibility, recognizing that certain factors may be outside a party’s control while still holding them accountable for making sincere and practical attempts to meet the agreed-upon objectives.
For businesses, including reasonable best efforts provisions in contracts helps clarify obligations, reduce the risk of disputes, and ensure a fair approach to achieving contractual goals.
Understanding reasonable best efforts through an example
Imagine a technology company agrees to use reasonable best efforts to deliver a software update to a client by a specific date. The company allocates sufficient resources, prioritizes the project, and communicates regularly with the client. However, if unexpected technical issues arise that prevent delivery by the deadline, the company would not be in breach as long as they acted diligently and made practical efforts to resolve the issues.
In another example, a buyer in a real estate transaction agrees to use reasonable best efforts to secure financing for the purchase. This means the buyer must apply for loans, provide requested documentation to lenders promptly, and explore alternative financing options if necessary. If they fail to obtain financing after taking these reasonable actions, they would still have fulfilled their contractual obligation.
An example of a reasonable best efforts clause
Here’s how a reasonable best efforts clause might appear in a contract:
“Each Party agrees to use reasonable best efforts to fulfill its obligations under this Agreement, including obtaining all necessary approvals, providing required documentation, and taking commercially reasonable actions to achieve the objectives of the transaction.”
Conclusion
Reasonable best efforts provisions set a balanced standard of diligence and practicality in contracts, ensuring that parties make sincere attempts to meet their obligations without requiring extraordinary measures. For businesses, these provisions promote fairness, reduce the risk of disputes, and provide flexibility in navigating unforeseen challenges. Clearly defining reasonable best efforts in agreements helps align expectations and fosters cooperative relationships between parties.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.