Contract Review: How to Read a Contract Before You Sign It

Most people review a contract by starting at page one and reading until their attention gives out, which is usually somewhere around the middle. That is the worst possible order, because the clauses that decide what happens when the arrangement goes wrong sit at the back, and they are the ones being skimmed by the time you reach them.

This is general information about contracts under the law of England and Wales rather than legal advice. Scotland and Northern Ireland have separate legal systems and several of the rules below differ there. For anything significant, a solicitor is the right person to ask, and the point of a good review is to make that conversation shorter rather than to replace it.

What is a contract review?

A contract review is a structured read of an agreement before you commit to it, aimed at finding what the document actually obliges you to do and what it will cost you if things go badly. Done properly it takes about an hour, in five passes, plus one thing the document will not tell you.

• What happens when it goes wrong. Liability caps, indemnities, any personal guarantee, governing law and where a dispute is heard.
• How it ends. Renewal, notice deadlines, early exit and which obligations survive.
• Who the parties are. The exact legal entities, checked rather than assumed.
• What the money is. The price, what is excluded, when it is due, and whether it can go up.
• What each side has promised. Specific enough that you can tell when it has been done.
• And what the law adds or removes. Some terms are unenforceable however clearly drafted, and some rights exist whether or not anybody wrote them down.

The order matters more than the completeness, which is why the list above runs backwards through a typical agreement. Reading the risk and exit clauses first, while you are still concentrating, is the single change that improves most people's review.

1. What happens when it goes wrong

Start at the back, because this is where the cost of a bad outcome is decided and it is the section everyone reaches with their concentration gone.

Find the liability cap and check whether it is mutual, since a cap that limits the supplier to the fees paid while leaving the customer exposed without limit is common and one-sided. Then any indemnity, which is a promise to cover somebody else's losses and is open-ended unless it says otherwise. Then any personal guarantee, which takes an obligation out of a company and attaches it to a person. Then governing law and jurisdiction, which decide whose law applies and where a claim has to be brought, and whether arbitration replaces the courts.

What to look for: whether the cap and the indemnity run in both directions, and whether the forum named is one you could realistically use. A clause sending a modest dispute to another country's courts can make a claim uneconomic without ever saying so.

2. How it ends, and what survives

Automatic renewal with a long notice period is the single most common way people end up locked into another year of something they meant to leave. A clause requiring ninety days' written notice before the end of a twelve month term means the decision point is at month nine, not month twelve.

Then check what continues after termination. Confidentiality, intellectual property assignments and restrictions on soliciting staff or customers commonly survive the end of the agreement, and a survival clause at the back will list them.

What to look for: the renewal notice deadline, put in a calendar the day you sign, and the list of surviving obligations.

3. Who you are actually contracting with

Check the exact legal name of the other party against the register at Companies House rather than accepting the trading name on the cover page. A group might have a dozen entities and the one on your contract may not be the one with the assets, the reputation or the trading history you thought you were dealing with.

Then check what you are signing as. Signing on behalf of a company that does not exist yet, or in your own name where you intended to bind a company, is a mistake that only becomes visible when somebody wants to enforce the agreement.

Two practical notes. Companies House does not register sole traders or ordinary partnerships, so if that is who you are dealing with the register will not help and the name on the invoice is what you have. And signing for a company that has not yet been incorporated has a specific consequence under section 51 of the Companies Act 2006: the contract takes effect as one with the person who purported to act for it, who is personally liable on it.

What to look for: the company number, not just the name. Two companies can have confusingly similar names and only one of them owes you anything.

4. The money, and the right to change it

The price is rarely the problem. What causes trouble is everything attached to it: what falls outside the quoted figure, when payment becomes due, what starts that clock, and whether the other side can raise the price during the term.

Price review clauses deserve a proper read. A right to increase charges annually in line with an index is a different proposition from a right to increase them on notice at the supplier's discretion, and the second is common in standard terms. If you are supplying rather than buying, the corresponding point is what happens when you are paid late, which the law has an opinion about even if your contract does not: statutory interest at 8 per cent above the Bank of England base rate, plus a fixed sum of £40, £70 or £100 depending on the size of the debt, and reasonable recovery costs above that. On a small invoice the fixed sum is often worth more than the interest.

What to look for: whether any price increase is capped, whether it needs your agreement, and whether you can exit if you do not accept it.

5. What each side has actually promised

Obligations should be specific enough that both sides can tell whether they have been met. Watch for service levels presented as targets rather than promises, and anything measured by the other party's own satisfaction. Endeavours wording deserves more care than it usually gets: reasonable endeavours, all reasonable endeavours and best endeavours are three different promises in ascending order of burden, English courts do enforce them, and which one you want depends entirely on whether you are giving the obligation or receiving it.

This is also where to check that whatever persuaded you to do the deal appears in the document. Most commercial agreements contain an entire agreement clause providing that the written contract is the whole of it, which generally stops a pre-contract assurance becoming a term of the contract.

One thing worth knowing, because it is the most useful qualification in this whole post. An entire agreement clause does not by itself defeat a claim for misrepresentation. To do that it has to go further and exclude liability for misrepresentation or non-reliance, and under section 3 of the Misrepresentation Act 1967 such a term has no effect unless it satisfies the requirement of reasonableness, with the burden on the party relying on it to show that it does. So a verbal assurance that never made it into the document is not automatically worth nothing.

What to look for: the entire agreement clause, whether it also excludes misrepresentation, and then whether the specific promise you are relying on is somewhere in the text.

6. Four things the law decides for you

A contract review that looks only at the document is incomplete, because some terms will not be enforced however clearly they are drafted and some rights apply whether or not the contract mentions them. Four come up constantly: what can be excluded from liability, whether an unfair term binds a consumer, how long you have to sue, and interest on a late commercial payment. Extents differ, so the figure names the nations each one covers.

The first is the one to recognise on sight. A clause excluding all liability of the supplier however caused is common and, read literally, reaches further than the law allows. Under section 2 of the Unfair Contract Terms Act 1977 liability for death or personal injury resulting from negligence cannot be excluded at all, and other loss caused by negligence only so far as the term satisfies the requirement of reasonableness. Two limits are worth knowing, because guidance often skips them. The Act governs business liability, and a clause excluding liability for a breach that involved no negligence is caught by section 3 rather than section 2, which applies only where one party is dealing on the other's written standard terms.

The scope also changed. Since 1 October 2015 section 2 no longer covers consumer contracts, which are governed by the Consumer Rights Act 2015 instead, and the change is not retrospective, so a consumer contract made before that date is still under the old regime. A good deal of older guidance has this the wrong way round. Note too that the consumer test is fairness rather than reasonableness; they are different tests.

The limitation point is the one people find most surprising. In England and Wales you have six years to bring a claim founded on a simple contract, running from when the cause of action accrued, and twelve years if the agreement was executed as a deed. Scotland has an entirely separate prescription regime, shorter for some claims and longer for others, so a Scottish contract needs checking separately rather than assuming either figure.

The deed point has a trap in it. A document headed Deed is only a deed if it also makes clear on its face that it is intended as one and is validly executed as one, which for an individual under section 1 of the Law of Property (Miscellaneous Provisions) Act 1989 means signing in the presence of an attesting witness and delivering it. A document called a deed but signed without a witness is not one, and carries six years rather than twelve.

What to look for: whether the liability clause is drafted so broadly that parts of it cannot work, and whether the document is both expressed and executed as a deed. Neither is obvious unless you are looking.

7. Intention to create legal relations

For an agreement to be a contract in English law, four things have to be present: an offer, acceptance of it, consideration moving from the promisee, and an intention to create legal relations. The terms also have to be sufficiently certain. Consideration must move from the person seeking to enforce the promise, though it need not move to the promisor, and a document executed as a deed needs no consideration at all, which is one of the reasons deeds are used.

Intention to create legal relations is a genuine element rather than a formality, though in commercial dealings it is presumed, so it rarely helps a business trying to escape an agreement. Where it does real work is at the edges: arrangements between family members, agreements described as subject to contract, and heads of terms or letters of intent, which are commonly drafted to be non-binding except for a few specified clauses.

What to look for: the words subject to contract on anything you are treating as preliminary, and, on a letter of intent, exactly which clauses are stated to bind. Usually confidentiality and costs do, and nothing else.

The ten minute version

When a full pass is not going to happen, this order finds the most in the least time.

1. The exact legal name of the other party, checked at Companies House.
2. The total price and what sits outside it.
3. The term, whether it renews automatically, and the notice deadline.
4. Any personal guarantee, uncapped indemnity, or missing liability cap.
5. Governing law and jurisdiction.
6. Whether the thing you were promised verbally is written down.

Anything you cannot find because the agreement is silent is itself a finding. Silence usually means a default applies, and the default was not drafted with you in mind.

Where RateMyContract fits in

The reason contracts go unread is not carelessness. It is that the document is long, the language is unfamiliar, and there is no obvious place to start. RateMyContract exists to remove that first barrier: upload the agreement and it works through the document in plain English and flags clauses people commonly overlook, which gives you a view on where to spend the hour.

What it does not do is give legal advice, tell you whether to sign, or judge whether a particular clause would be enforced against you in an English court. Those are questions for a solicitor. It reads, and it is free, which makes it a reasonable first step rather than the whole review.

When to talk to a solicitor

Some agreements are worth paying for advice on rather than working through alone. Anything involving a personal guarantee or an uncapped indemnity, because both put assets outside the deal at risk. Anything where the amount at stake would genuinely hurt to lose. Anything involving property or a long lease. Agreements containing restrictive covenants, since enforceability turns on detail. And anything that has already gone wrong, where the question is no longer what the document says but what can now be done.

Fixed fee contract review services exist in the UK and are worth knowing about if the alternative is no review at all, though what they cover varies and is worth checking before instructing.

The short version

A contract review is a structured read of an agreement before you commit. Take it in five passes and run them backwards: what happens when it goes wrong, how it ends, who the parties are, the money, then what each side promised. Reading the risk and exit clauses first, while you are still concentrating, is the change that improves most people's review. Then remember the document is not the whole picture. In a business contract liability for death or personal injury from negligence cannot be excluded at all. An unfair term does not bind a consumer. In England and Wales you have six years to sue on a simple contract and twelve on a deed, provided the deed was properly executed. And a business is owed statutory interest and a fixed sum on a late commercial payment whether or not the contract mentions either.

If a contract is in front of you now, RateMyContract will read it back in plain English before you start. The contract checklist works through a document point by point, and what is a contract covers the underlying rules on what makes an agreement binding.

Frequently asked questions about contract review

What is a contract review?

A structured read of an agreement before you sign, aimed at finding what it obliges you to do and what a bad outcome would cost. A thorough review covers what happens when it goes wrong, how the agreement ends, who the parties are, the money, and what each side promised, plus what the law adds or removes regardless of the drafting. It usually takes about an hour on a commercial agreement of ordinary length.

How long should a contract review take?

About an hour for a typical commercial agreement, split into five passes of ten to fifteen minutes each. A ten minute version covering any guarantee or indemnity, the renewal deadline, the parties, the price, the governing law and whether your verbal understanding is written down will find most of the serious problems. Long or unusual agreements take considerably longer and are the ones worth paying for.

Do I need a solicitor to review a contract?

Not for everything. Straightforward agreements with modest sums at stake are commonly signed without advice. A solicitor earns the fee where there is a personal guarantee, an uncapped indemnity, property, a restrictive covenant, or an amount that would hurt to lose. Reading the document first makes that conversation shorter and cheaper.

Can I cancel a contract after signing it in the UK?

Sometimes. There is no general right to change your mind. Consumers buying at a distance or away from business premises usually have a 14 day cancellation period under the Consumer Contracts Regulations 2013, with exceptions. Business to business agreements have no equivalent, so exit depends on the termination clause or on a defect in how the contract was formed.

What makes a contract legally binding in the UK?

Under the law of England and Wales: an offer, acceptance of that offer, consideration moving from the promisee, and an intention to create legal relations, with terms certain enough to enforce, both parties having capacity and the purpose being lawful. Most contracts do not have to be in writing, though some do. A deed needs no consideration and carries a twelve year limitation period rather than six, provided it is properly executed.

What should I check first in a contract review?

The parties and the exit. Confirm the exact legal entity you are contracting with at Companies House, then find the term, whether it renews automatically and the notice deadline for stopping that. Those two checks take five minutes and catch the two problems that most often turn into expensive surprises.