The Contract Red Flags Checklist: 7 Things to Catch Before You Sign

Whether you're reviewing a vendor agreement, a SaaS terms of service, or an employment contract, some red flags are universal. Here's a checklist you can use before signing any business contract.

1. Auto-Renewal Clauses

Many contracts automatically renew for another term unless you give notice — sometimes 60 or 90 days in advance. Miss the window, and you're locked in for another year.

What to do: Set a calendar reminder well before the notice deadline.

2. One-Sided Indemnification

If the contract requires you to indemnify the other party but they don't indemnify you, the risk allocation is unbalanced.

What to do: Push for mutual indemnification or at least a cap on your liability.

3. Unlimited Liability

Contracts without a liability cap can expose you to damages far exceeding the contract's value.

What to do: Negotiate a liability cap tied to fees paid (e.g., 12 months of fees).

4. Broad Intellectual Property Assignment

Some contracts include IP assignment clauses that transfer ownership of work product — including things created outside the scope of the engagement.

What to do: Ensure IP assignment is limited to work created specifically under the contract.

5. Vague Termination Rights

Can the other party terminate without cause on short notice, while you're locked in for the full term? That's a red flag.

What to do: Ensure termination rights are mutual and clearly defined.

6. No Dispute Resolution Mechanism

Without a specified process (mediation, arbitration, or litigation), disagreements can become expensive and unpredictable.

What to do: Include a step-by-step dispute resolution process, starting with negotiation.

7. Governing Law in an Unfavorable Jurisdiction

The contract may specify that disputes are governed by laws in a distant or unfavorable jurisdiction.

What to do: Negotiate for a neutral or local jurisdiction.

Use AI to Catch What You Miss

Even experienced professionals overlook details in long contracts. AI-powered review tools like EqualDocs can scan your document in seconds, flagging these red flags automatically and suggesting improvements — so you can sign with confidence.