What is a settlement agreement and when to use it

A settlement agreement is a contract used to resolve a dispute or uncertainty between parties by replacing the old obligation with a new one.
It is a legal tool for avoiding or ending legal disputes.

Common use cases:

• commercial disagreements,

• unclear contract fulfillment,

• debt settlements,

• termination of cooperation with mutual release of claims.

Legal framework

Regulated by the Czech Civil Code (§ 1903–1907).
The contract:

• replaces a previous (disputed or unclear) obligation,

• creates a new, agreed obligation,

• extinguishes previous claims.

Key elements of a settlement agreement

• Parties to the contract

• Description of the original issue or claim

• Terms of the new agreed obligation

• Mutual release of prior claims

• Date and signatures

• Optional: clause stating full and final settlement

Common mistakes

• Vague or incomplete description of the original dispute

• No clause on release of further claims

• No clear definition of the new obligation

• Missing mutual confirmation and signature

• Unenforceable terms if breached

Recommendations

• Be specific about the original dispute

• Clearly define what both parties agree to

• Include a clause such as:

  “By this agreement, the parties settle all claims and obligations and waive any future demands related to the original matter.”

Practice tip

A properly drafted settlement agreement can prevent years of costly litigation.
It’s especially powerful when signed with legal advice and mutual clarity.

Settlement agreement template – available for a symbolic fee

I offer a simple Czech-English settlement agreement template suitable for resolving business or private disputes.

For complex cases or court-related settlements, I offer custom drafting.

Contact me via e-mail or contact form – efficient and professional support.

FINAL THOUGHTS – WHAT NOW?

A settlement agreement  isn’t just a formality – it’s a legal shield, if drafted properly. And a trap, if not.

Do you want to be sure your contract will hold up even in a crisis? Get in touch and let’s schedule a meeting. I am a specialist on contract law – more information here.