We get it. You’ve got a new supplier starting Monday, you need something in writing, and ChatGPT can produce a five-page contract in thirty seconds. It looks the part. It uses the right language. You sign it, they sign it, and everyone moves on.
Then they don’t pay, or they walk off with your client list, or you try to enforce something and discover the clause that was supposed to protect you is completely unenforceable under English law.
That’s when the thirty-second contract becomes a very expensive problem.
AI can draft. It cannot protect.
This isn’t an anti-AI argument, but there’s a difference between drafting and protecting, and most business owners don’t realise that until something goes wrong.
In England and Wales, a contract’s value isn’t in how it reads, it’s in how it performs under pressure. Courts apply established principles: offer, acceptance, consideration, and intention to create legal relations. AI tools can reproduce those words. What they cannot do is assess whether the clauses actually hold up, whether they conflict with legislation, or whether the most important protections are missing entirely.
And missing clauses are the real danger – not bad clauses, the missing ones.
Where it tends to go wrong
The most common issue we see is liability. AI-generated contracts tend to produce vague limitation clauses that feel reassuring on paper but don’t survive a serious dispute. If your liability cap isn’t properly drafted, you may have far greater exposure than you think.
Payment terms are another one. If your contract doesn’t clearly set out when payment is due, what happens if it isn’t made, and how interest accrues, you’re making debt recovery harder for yourself before a dispute even starts. The Late Payment of Commercial Debts (Interest) Act 1998 gives you statutory rights, but your contract still needs to be properly aligned with them if you want to rely on them in practice.
Data protection is increasingly an issue too. If any contract involves processing personal data, it needs to reflect UK GDPR obligations and the Data Protection Act 2018. AI tools don’t check this. They produce wording that sounds compliant but often isn’t. The ICO’s guidance is here if you want to understand what’s actually required: https://ico.org.uk/for-organisations/uk-gdpr-guidance-and-resources/
The confidence problem
What makes AI-generated contracts genuinely dangerous is that they look fine. The formatting is clean, the language sounds authoritative and there’s no obvious red flag.
That confidence is a trap. We’ve reviewed contracts that read like they were drafted by a City firm but had no meaningful IP protection, no dispute resolution clause, and payment terms so vague they were essentially unenforceable. The business owner had no idea. Why would they – it looked professional.
A contract isn’t tested at the point of signing. It’s tested when the relationship breaks down. By then, fixing it costs considerably more than getting it right would have.
When to get proper legal input
You don’t need a lawyer for every piece of paper. But if money is changing hands regularly, if there’s ongoing service delivery, if IP is involved, or if you’re going to rely on this document if things go sideways – get it properly drafted or, at a minimum, reviewed.
At McKenzie Legal & HR, most of the contract work we do comes in one of two ways: someone who wants it done right from the start, or someone who’s already in a dispute and needs to understand what they’re actually working with. The first conversation is always cheaper.
The bottom line
AI is a useful tool. It is not a substitute for legal judgment. In English and Welsh contract law, the difference between a document and a contract that actually protects your business usually comes down to the detail that an AI doesn’t know to include because it doesn’t know your business, your risk profile, or what a court would actually do with the wording it’s just generated.
Use it to think – don’t use it to protect.
How we can help
Book a 30 minute consultation for £50, and we will tell you exactly where you stand. If you instruct us within seven days, the consultation fee comes off your first invoice.
- https://www.mckenzielegalandhr.co.uk/contact-us
- info@mckenzielegalandhr.co.uk
- Or call us on 0118 321 4188.
To find out more about the support we offer across Contracts and Terms & Conditions, click the links below.
- https://www.mckenzielegalandhr.co.uk/contracts
- https://www.mckenzielegalandhr.co.uk/terms-and-conditions-drafting-review
FAQs
- Are AI-generated contracts legally binding in the UK?
Yes, AI-generated contracts can be legally binding in England and Wales, provided they meet the basic requirements of contract law (offer, acceptance, consideration, and intention to create legal relations). However, enforceability is the real issue. A contract may be binding in principle but still fail to protect your business if key clauses are missing, unclear, or non-compliant with UK legislation.
- What are the main risks of using AI to draft business contracts?
The main risks include missing or unenforceable clauses, incorrect legal wording, lack of compliance with UK laws such as the UK GDPR or Late Payment of Commercial Debts legislation, and poor protection in the event of a dispute. These gaps often only become apparent when a business tries to enforce the contract, particularly during payment disputes or breach of agreement.
- Should I still use AI for contracts if I’m a small business?
AI can be useful as a starting point for ideas or structure, but it should not be relied upon for final contracts that govern commercial relationships, payments, or liability. Small businesses are often the most exposed when contracts are weak, as they rely heavily on clear payment terms and enforceable protections. It is best practice to have AI-generated documents reviewed or drafted by a legal professional before use.