Guide
Contract red flags: 15 clauses to check before you sign
When a bigger company sends you its contract, the unfairness is rarely spread evenly. It sits in a handful of clauses. Here are the fifteen that most often tilt the deal, what they look like, and what to ask about each one.
In short
Most one-sided contracts put their weight in the same few places: who pays when things go wrong (liability and indemnities), how and when you get paid, who owns the work, how each side can leave, and what you’re stopped from doing afterwards. Read those clauses first, check whether each obligation runs both ways, and take the ones that worry you to a lawyer with specific questions.
Why the contract you’re sent favours the sender
Large organisations don’t negotiate every contract from scratch. They use standard terms drafted by their lawyers to protect them, and send the same document to hundreds of suppliers, freelancers and partners. Nothing about that is sinister: it’s simply their starting position. The problem is that smaller businesses often sign it as if it were final, because reading thirty pages of legal drafting under a deadline is hard, and paying a lawyer to do it for every contract is expensive.
The good news is that the imbalance usually concentrates in the same places. You don’t need to understand every word to find it. You need to know where to look, and what a fair version would look like.
How to read a contract for red flags in 20 minutes
- Find the parties and the defined terms. Note who is “the Customer”, “the Supplier” or “the Company”, and skim the definitions: a lot of meaning hides in words like “Deliverables”, “Losses” or “Confidential Information”.
- Follow the money. Price, when you invoice, when they pay, and anything they can deduct.
- Follow the risk. Liability caps, exclusions, indemnities and insurance. Ask: if something goes wrong, what’s the most each side could owe?
- Follow the exit. How long it lasts, whether it renews, and how each side can end it.
- Check what survives. Restrictions that bind you after the contract ends, and who owns what you made.
For each clause, one question does most of the work: does this run both ways? Most red flags are obligations that bind only you, or protections that cover only them.
Liability and risk
1. Unlimited liability for you, a cap for them
A limitation of liability clause sets the most each side can be made to pay if things go wrong. Look for a cap that protects the other side (often the fees paid in the last twelve months) while your liability is “unlimited” or excluded from the cap entirely.
8.2 The Customer’s total liability shall not exceed the Charges paid in the preceding twelve (12) months. The Supplier’s liability under this Agreement shall not be limited.
Ask for a mutual cap, set at a figure your insurance actually covers. More in our guide to limitation of liability clauses.
2. One-way indemnities
An indemnity is a promise to cover the other side’s losses from a particular risk, often including their legal costs, and often without them having to prove you breached the contract. A broad one-way indemnity (“the Supplier shall indemnify the Customer against all losses arising out of or in connection with this Agreement”) can sit outside any liability cap and turn a small contract into a large exposure. Look for indemnities limited to things you actually control, such as third-party claims that your work infringes someone’s intellectual property. Our indemnity clause guide covers what reasonable ones look like.
3. Lop-sided exclusions of indirect loss
Many contracts exclude “indirect or consequential loss” and “loss of profit”. That’s normal when it applies to both sides. It’s a red flag when only the bigger party is protected, or when their own losses (including lost profits) are expressly recoverable from you.
4. Insurance you don’t have
Requirements to carry professional indemnity, public liability or cyber insurance at levels far above your current policies are easy to miss, and breaching them can itself be a breach of contract. Check the amounts, the types of cover, and whether you must name them on your policy.
Money
5. Long payment terms
Payment “within 90 days of the end of the month in which a valid invoice is received” can mean waiting more than four months for your money. In the EU, the Late Payment Directive says payment periods between businesses shouldn’t exceed 60 days unless expressly agreed and not grossly unfair to the supplier. In the UK, construction contracts can’t make payment conditional on the payer being paid by someone else (“pay when paid”), except on insolvency. See our guide to payment terms.
6. Deductions and set-off
Watch for rights to deduct “supplier contributions”, rebates or administration fees from every invoice, and for set-off clauses letting them withhold money they say you owe on another matter. Each deduction quietly reduces your price.
4.3 The Customer shall be entitled to deduct from each payment a supplier contribution of 3% of the invoiced amount towards the Customer’s costs of administering its supplier programme.
7. Switching off late-payment interest
In the UK, the Late Payment of Commercial Debts (Interest) Act 1998 lets a business claim statutory interest on late payments from another business, plus fixed compensation. A clause saying “no interest shall accrue on late payments” is only effective if the contract gives a substantial alternative remedy; otherwise the statutory right can still apply. A contract that tries to remove it is still a signal about how payment disputes may go.
8. Open-ended scope and free changes
Vague descriptions of the work (“such services as the Customer may reasonably require”), unlimited revisions, or a right to change the specification without changing the price all shift risk to you. Look for a clear scope and a change process that prices extra work.
Ownership and confidentiality
9. Taking ownership of everything, including what you already owned
It’s normal for a client to own the deliverables they pay for. It’s a red flag when the assignment also sweeps up your pre-existing tools, templates, code, methods or know-how, or when ownership passes on signing rather than on payment. In the UK, a freelancer or contractor usually owns the copyright in their work unless it is assigned in writing, which is exactly what these clauses do. See intellectual property clauses for freelancers and agencies.
10. Confidentiality that only protects them
If you’ll share pricing, methods or client lists, you need confidentiality to protect you too. Also check how long the obligations last, and whether “Confidential Information” is defined so widely that you couldn’t reuse general skills or experience.
Getting out
11. They can walk away; you can’t
A right for them to end the contract “for convenience” on short notice, with no equivalent right for you, lets them cancel after you’ve hired staff or turned down other work. Check what you’re paid for work in progress if they do.
12. Automatic renewal with a narrow exit window
Contracts that renew automatically unless you give notice in a short window (for example, “not less than 90 days before the end of the Initial Term”) can lock you in for another full term if you miss the date. Diary the notice deadline the day you sign. More in our guide to termination and auto-renewal clauses.
Restrictions on your business
13. Non-competes, non-solicitation and exclusivity
Clauses stopping you working for the other side’s competitors, approaching their customers or staff, or selling similar services elsewhere can be worth more to them than the contract itself. Courts in the UK only enforce restrictions that protect a legitimate interest and go no further than necessary, and in the US the rules differ from state to state, with California, for example, treating most non-competes as void. Enforceable or not, a broad restriction can deter you from work you’re entitled to take. See non-compete and non-solicitation clauses.
14. “We may change these terms at any time”
A right for one side to vary the contract by notice, or by updating terms on a website, means the deal you signed may not be the deal you end up with. Changes should need both sides’ written agreement.
Disputes and personal exposure
15. Disputes decided far from home, and personal guarantees
The governing law and jurisdiction clause decides which country’s law applies and where disputes are heard. A UK business agreeing to New York law and courts, or to confidential arbitration in another city, may find a dispute too expensive to pursue. Read our guide to governing law and jurisdiction clauses.
Finally, look for anything asking you, as a director or owner, to guarantee your company’s obligations personally. A personal guarantee puts your own assets behind the company’s promises and deserves a lawyer’s advice before you sign it.
What to do when you find one
- Prioritise. You won’t win every point. Pick the three or four that could genuinely hurt you: usually liability, payment and IP.
- Ask for mutuality. “Can this apply to both of us?” is the simplest and most persuasive request in contract negotiation.
- Propose a specific fix. A cap at a number, a 30-day payment term, a carve-out for your existing materials. Specific requests get specific answers.
- Bring focused questions to a lawyer. A lawyer who’s given the red flags and your concerns can advise quickly. See how to brief a lawyer on a contract.
How LegalSling helps you find them
LegalSling reads the contract you’ve been sent and explains each clause in plain English, with a note on what it means for each side and which way it leans. Terms like the ones above are flagged in the document itself, with the exact words that triggered the flag. The governing law is taken from the contract’s own wording rather than guessed. You can add your own notes and turn everything into a brief for your lawyer. It explains; it doesn’t tell you whether to sign. See how it works.
Questions people ask
What is a red flag in a contract?
A red flag is a term that is markedly one-sided, unusual for that kind of agreement, or that may go further than the law allows. It isn’t automatically a reason not to sign. It is a point to understand, question and often negotiate before you do.
Can a contract between two businesses be unfair in law?
Sometimes. In the UK, the Unfair Contract Terms Act 1977 means some clauses that exclude or limit liability only stand if they are reasonable, and liability for death or personal injury caused by negligence can’t be excluded at all. Some EU countries, such as Germany, review standard business terms for fairness. In the US, courts generally hold businesses to what they signed, with narrow exceptions. In most places, negotiating the terms before signing is far more effective than challenging them afterwards.
Should I refuse to sign a contract with red flags in it?
Not necessarily. Many red flags are standard opening positions that the other side expects to be questioned, and plenty are fixed with one sentence, such as making an obligation mutual or adding a cap. Whether to sign is your decision, ideally made with a lawyer’s advice on the clauses that matter most to you.
What should I check first when I’m sent a contract?
Start with the money (price, payment terms, deductions), then the risk (liability, indemnities and insurance), then the exit (term, renewal and termination), then ownership of the work, and finally anything that restricts your business after it ends. Those five areas hold most of the imbalance in most commercial contracts.
Do I need a lawyer to review a contract?
For anything valuable, long-term or risky, a lawyer’s advice is worth having. You can make it quicker and cheaper by reading the contract first, marking the clauses that worry you and bringing specific questions, rather than paying for a line-by-line read from scratch. Here’s how to brief a lawyer on a contract.
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