Define: Compliance with Law
Compliance with Law is a contract clause requiring a party to conduct its obligations under the agreement in accordance with all applicable statutes, regulations, and governmental requirements. It obligates the party to obtain necessary licenses, follow industry standards, and adapt to legal changes, ensuring the contract's performance remains lawful throughout its term and reducing the risk of penalties or unenforceability.
Legal accuracy standard set & glossary spot-checked by Imad Mohammed Nazar , Skadden-trained M&A lawyer, Legal Engineer at GenieAI
What Compliance with Law Means in a Contract
A Compliance with Law clause is a promise, usually framed as a covenant, that a party will carry out its obligations under an agreement in accordance with all laws, rules, and regulations that apply to it. This includes statutes passed by national legislatures, regulations issued by governmental agencies, local ordinances, and any binding guidance that carries the force of law. The clause is not limited to a single area of law; it typically spans employment, tax, health and safety, data protection, environmental, and sector-specific rules relevant to the contract's subject matter.
The purpose of the clause is to allocate responsibility clearly. Rather than leaving compliance as an unstated assumption, the parties make it an explicit contractual duty. This means that a failure to comply is not only a potential breach of external law but also a breach of the contract itself, giving the other party a direct remedy under the agreement rather than relying solely on regulatory enforcement.
In practice, this clause often works alongside representations and warranties, indemnities, and audit rights, forming part of a broader risk allocation framework. It signals to both parties, and to any regulator or court reviewing the contract, that lawful conduct is a foundational expectation of the relationship, not an afterthought.
How Compliance with Law Is Defined or Measured
Because.
Relevant Circumstances
- Formation of a new business or entity
- Selling or buying products or services
- Merging of existing businesses
- Licensing of intellectual property, software, or general use