Contract red flags: warning signs in commercial agreements

The clauses that most often make a commercial contract risky or one-sided, and what to ask for instead before you sign.

Updated Written for UK contracts under English law

Most contracts are reasonable. Some are drafted to push as much risk as possible onto the other side, and those are usually spotted by the same handful of clauses. Knowing what they look like makes it easier to ask for changes before you sign.

Unlimited liability and wide indemnities

Most commercial contracts cap each party’s liability, often by reference to the fees. Be wary if your liability is unlimited while the other side’s is capped, or if the cap has so many exceptions that it barely applies. Look closely at indemnities too. A clause requiring you to cover the other party’s losses, including losses caused by its own negligence or breach, is a serious warning sign. Ask for indemnities to be limited to losses you cause and brought within the cap where possible.

One-way termination and automatic renewal

Some contracts let one party end the contract whenever it likes while the other is tied in for the full term. Ask for termination rights on equal terms. Automatic renewal clauses with short or awkwardly timed notice windows can lock you in for another year before you realise. Ask for a notice window you can realistically meet, or a reminder from the supplier before renewal, and diarise the date either way.

Vague obligations and one-sided changes

Vague descriptions of what is being delivered lead to disputes, so ask for specific obligations, deadlines and standards. Be wary of clauses letting the other party change the terms, prices or service on notice. Core terms such as price, scope, liability and duration should only change by written agreement, or at the least you should be able to leave without penalty if they change.

IP ownership, data and confidentiality

Check who ends up owning anything created under the contract, and make sure you keep what you already owned beforehand. Look at how your data can be used: a supplier using your data to provide the service is normal, but using it for its own purposes or sharing it more widely should be agreed expressly and must comply with data protection law. Confidentiality should cover information that is genuinely confidential, not information that is already public or that you already had.

What to do about red flags

Finding one of these doesn’t mean you shouldn’t sign, but it does mean you should raise it. Many counterparties will move on the points that matter to you if you explain why. QuickLegalCheck reviews your contract, flags clauses like these and suggests what to ask for. For a high-value or complex contract, or if you need advice on your own position, ask a solicitor to review it.

Related: what the contract review covers, and a complete sample report.

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