How to Read a Contract Someone Sends You

Read for consequences, not for comprehension

A contract someone sends you was drafted by their side, for their side. Reading it front to back looking for anything objectionable is slow and does not work, because the terms that hurt are rarely the ones that read as aggressive.

Read instead for a specific short list. Every term below answers the question: if this relationship goes badly, what happens to me?

The five terms that carry the risk

Find these five, in this order, and you understand your exposure even if you understand nothing else in the document.

• Liability — is your exposure capped, and at what number? An uncapped liability clause, or a cap set at a multiple of fees rather than a fixed sum, is the single most consequential term in most commercial contracts.
• Indemnity — what are you promising to cover on their behalf, and is it mutual? A one-way indemnity for broad categories of claim can dwarf the value of the deal.
• Term and termination — how long are you bound, does it auto-renew, how much notice must you give, and can you exit for convenience or only for cause? Auto-renewal with a long notice window is how a cancelled service keeps billing.
• Intellectual property — who owns what is created, and what licence are you granting in anything you put into their system? Watch for grants broader than the service requires.
• Data — what happens to your data or your users' data: where it goes, who processes it, whether it is used to train anything, and what happens to it on termination.

What to do with what you find

Finding a bad term does not mean you cannot sign. Most of these are negotiable, and asking for a liability cap or a mutual indemnity is routine rather than hostile. The failure mode is signing without knowing which of the five you conceded.

The line for escalating to a lawyer is worth setting in advance: uncapped liability, a broad IP assignment, or anything where the downside exceeds what the company can absorb. Below that line, informed self-service is reasonable. Above it, the review costs less than the term does.

This lesson is the orientation. The full reference is here:

Does exactly the pass above on a document you upload: locates the liability, indemnity, term, IP, and data clauses and flags the unusual ones so you know what you are conceding.