In an era where artificial intelligence (AI) is being used to write everything from emails to entire legal documents, it’s tempting for small and medium-sized business owners to rely on these tools to draft their commercial contracts. But is it a smart business decision or a costly legal risk?

As a solicitor, I regularly review contracts that have clearly not been drafted or even reviewed by a legal professional. Whether it’s a Non-Disclosure Agreement, Shareholders Agreements, or general Terms and Conditions, these documents rely on precise legal language and an understanding of current legislation and case law. Relying on AI for this carries significant risk.

While AI will undoubtedly become more sophisticated in the years ahead, it is no replacement for specialist legal expertise. Here are some of the key risks that businesses face when relying on AI to draft commercial contracts. Risks that could lead to unenforceable agreements, disputes, or even litigation through the courts.

1. Inaccurate or misleading legal content

AI tools, particularly free or publicly available models, often generate content that appears legally sound but may include:

• Incorrect references to foreign jurisdictions. I’ve been sent contracts to read with references to California or Zimbabwe laws instead of the UK!
• Fabricated legal clauses
• Misapplied legal terminology

These issues may not be obvious to the untrained eye, but they can make the contract ineffective or worse, unenforceable.

2. Failure to reflect current UK law

Laws and regulations evolve constantly, and legal documents must reflect this. AI models do not always have access to the most up-to-date details of UK legislation, and even when they do, they may not understand how it applies in context to the situation. I have seen AI-generated contracts miss critical statutory requirements or include outdated provisions that are no longer valid under current law.

A legally binding contract is not just about words on a page, it’s about ensuring those words comply with legislation and case law, and that the parties have met any procedural steps required by law.

3. Insurance and liability concerns

Most businesses assume they’re covered by insurance in the event of a contract dispute. However, if the dispute arises from a contract generated by AI without legal review, then there is a real risk your insurer may decline to cover the claim.

Always check the wording of your professional indemnity or business insurance policies. If you’re unsure, speak directly with your insurer or broker to understand your position.

4. Confidentiality and data risks

Feeding sensitive business or client information into an open AI platform may breach data protection or confidentiality obligations. Open AI models often retain data or use it for future training. This opens the door to unintended data sharing or regulatory breaches particularly concerning around privacy or GDPR.

Why you still need a solicitor

Commercial contracts are about more than just a tick box exercise. They are strategic documents that protect your business interests, clarify obligations, and minimise the risk of disputes. AI can be a useful tool in drafting early-stage content or for inspiration, but it cannot replace the insight, nuance or judgment of a qualified solicitor.

Legal advice is not just a “nice to have” it’s an important part of risk management. Spending a little more up front to have your contracts reviewed or drafted by a solicitor could save you far more in the long run.

AI has a role to play in the future of business but using it to draft commercial contracts without legal oversight is a gamble and one that could cost your business dearly.

If you’re considering using AI in your contract drafting process, make sure a solicitor reviews the final document. Better still, engage legal advice from the outset. Your business is worth protecting.

Peter Kouwenberg is a partner and head of commercial law at Taylor Walton Solicitors.

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