How to Review a Contract Before You Sign It

To review a contract before signing, you need a method, because reading a contract front to back tells you what it says and not what it will do to you. The clauses that cause trouble are rarely the ones in bold. They are the notice window buried in the renewal clause, the indemnity that reaches further than the deal, the assignment right that lets your vendor hand your account to a competitor after an acquisition. The method below is the one our contract review and executive counsel team uses on every agreement, and it works whether the contract is four pages or forty.

Start with the deal, not the document

Before opening the contract, write down what the business thinks it agreed to: what you are getting, what you are paying, for how long, and what would make the deal a failure. Then read the contract against that list. Every place where the document departs from the business understanding is an issue, and most of them were not intentional on the other side either; they are the residue of a template written for a different deal.

Is the counterparty’s legal name correct and is it the entity that will actually perform? Does the person signing for your company have authority? Is there a term sheet, proposal, or email chain that the contract is supposed to reflect, and does it? If the agreement incorporates terms by reference, such as online terms of service at a URL, pull those terms now and save a copy, because they can change after signature and the contract may say the current version controls.

Map every obligation and deadline

Go through the document once with a single purpose: list every obligation, who owes it, and when. Two columns, yours and theirs. Include the quiet ones: notice obligations, insurance certificates, reporting, audit cooperation, confidentiality, non-solicitation, and anything that happens “within X days” of some event. Then list every deadline and notice window the contract creates and put the ones that matter on a calendar before signing, not after.

Pay attention to defined terms. A capitalized word means what the definitions section says, not what the word usually means. “Services” may exclude the part you care about. “Confidential Information” may include your own data. “Affiliate” may bind companies you do not control. Reading each clause with the definitions substituted in is tedious and finds problems nothing else finds. Our list of which clauses every business contract needs is the reference for what should be present.

Check the term, the renewals, and the exits

Find the initial term, then find how it ends. Many commercial contracts renew automatically unless one party gives notice within a window, often 60 or 90 days before the renewal date. Miss the window and you are committed for another year. Note whether the price can increase on renewal and by how much.

Then compare termination rights. Can you terminate for convenience? Can they? On how much notice, and with what fee? If only the other side can walk away freely, that asymmetry is worth raising. Read the termination-for-cause clause for the cure period and the notice mechanics, and read the effect-of-termination clause for what happens to your data, your prepaid fees, and any transition assistance. A contract that is easy to enter and hard to leave is a contract you are reviewing for the wrong reasons. For agreements structured as a master agreement with separate statements of work, see how an MSA and a statement of work fit together for the precedence questions to check.

Find the hidden risk clauses

Some clauses deserve a separate, slower read because their cost is not obvious from their length:

• Indemnification and limitation of liability, which decide who pays when something goes wrong and how much; we explain the mechanics in how limitation of liability and indemnity clauses work
• Exclusivity, minimum purchase commitments, and most-favored-customer pricing, which constrain your other relationships
• Assignment and change-of-control provisions, which decide whether the contract follows the counterparty to a new owner or follows you through a sale of your company
• Unilateral amendment rights, audit rights, and data use rights that let the other side change the deal or use your information after signing
• Governing law, venue, arbitration, jury waiver, and attorneys’ fees, which decide where and how any dispute is fought
• Personal guaranties, which turn a company obligation into your own

Each of these should be matched against the size and duration of the deal. A broad exclusivity clause in a small pilot agreement is a mismatch. A personal guaranty for an office lease may be unavoidable, but its scope and duration can usually be narrowed.

Decide what to push back on and what to accept

Sort the issues by what they could actually cost. The first group is terms that would make you decline the deal if unchanged. The second is terms worth a redline because the counterparty will likely accept a reasonable change. The third is terms you dislike but can live with, given the deal’s value. Send the first two groups back, with reasons and proposed language, and let the third go. Companies that review the same kinds of agreements repeatedly should write these positions down once, which we describe in how a contract playbook speeds up recurring deals. The negotiation itself is a different skill from the review, and CLP’s contract drafting and negotiation team handles that stage when the stakes justify it.

When to bring in outside counsel

Not every contract needs a lawyer, and the cost of review should match the risk. A short vendor agreement for a low-value, easily replaced service can be reviewed in-house against a checklist. Outside review is worth the cost when the contract carries significant revenue or spend, runs for more than a year, includes exclusivity, a guaranty, or a non-compete, assigns or licenses intellectual property, involves regulated data, or is the first of its kind for your company. It is also worth it when the counterparty’s draft was clearly written by experienced counsel and yours was not, because the asymmetry shows up in every clause. For companies without an in-house legal function, our general counsel services practice provides this review on a standing basis, so the question of whether to send a contract out is answered before it arises.

If a contract is on your desk and the signing date is close, Capitol Law Partners can review it against this method and tell you which terms to hold, which to trade, and which to sign. Schedule a consultation.

This article is for informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by this communication.

Attorney Cagatay Ersoy. Practical strategy for founders, investors, and growing companies.

Need help with this topic? See our contract review and executive advisory page or schedule a consultation.