Let's face it - who actually reads the fine print? A recent study suggests that this habit could end up costing us. Researchers at Laine AI, a company that specializes in legal tech, took a close look at 510 commercial contracts, including agreements for affiliates, licenses, distributors, franchises, and joint ventures. They searched for what's known as "hidden terms" - sneaky clauses that can put the person signing at a disadvantage, but are tricky to decipher without a law degree.
The headline finding is that 76% of the contracts contained at least one of nine "core" hidden terms. Add in 30 other high-risk clauses the team tracked, and that figure rises to 94 per cent. The average contract had 1.71 core hidden terms.
Here are five of the clauses that came up most often.
Who can you hand it to?
The most common core term was anti-assignment without consent, found in 55.7 per cent of contracts (284 of 510). It stops you transferring your rights or obligations to someone else without the other party's approval.
Laine AI says this can cause problems if your business is acquired, or if you want to move a contract to an affiliate. Check whether you would need permission before passing the deal on.
Can they walk away?
Next was unilateral termination for convenience, at 28.8 per cent. It lets one party end the contract at will, without having to prove a breach.
For the other side, Laine AI says that can mean revenue stopping suddenly, before they have earned back what they invested. Look for who holds this right, and whether it works both ways.
Who owns your work?
Broad intellectual property assignment came third, at 27.7 per cent. Instead of giving you a licence to use something, these clauses hand ownership of what is created under the contract to the drafting party.
Laine AI says that can restrict the rights of the person signing. If you are producing designs, software or content, read this clause closely.
The renewal trap
Automatic renewal with a narrow notice window appeared in 17.8 per cent of contracts. The agreement rolls over unless you give notice within a set period, and Laine AI's table notes that window is often 30 to 60 days.
Miss it, and you could be locked into another full term. Put the notice date in your calendar the day you sign.
Selling the business
Change-of-control and major transaction triggers showed up in 14.7 per cent of contracts. They create consent, termination or approval requirements when ownership changes or a merger takes place.
Laine AI says this can disrupt exits, financings or acquisitions. If you plan to sell or bring in investors one day, check for it now.
Beyond the five
The study found other high-risk clauses were even more common. Law, jurisdiction and venue clauses appeared in 81.4 per cent of contracts. No-reliance and entire-agreement clauses, which can cancel out promises made outside the signed document, showed up in 77.7 per cent. Indemnification obligations were in 72.6 per cent.
Laine AI says these are often treated as boilerplate, so they rarely raise concerns. Its analysis says a venue clause could force you to run a dispute in an unfamiliar and expensive location, while an entire-agreement clause could wipe out concessions agreed by email or in conversation.
Some deals carry more risk than others. Among categories with at least five contracts, all supply, intellectual property and franchise agreements contained core hidden terms. Franchise agreements also had the highest density of high-risk clauses, at an average of 11.93 per contract.
Before you sign
Laine AI's advice is to have a lawyer review contracts before you sign, because lawyers are trained to spot tricky provisions inside standard clauses. A lawyer can explain the implications and suggest changes so a clause is more balanced. If you choose to proceed anyway, you at least do so knowing the risk.
Full study and methodology here: https://www.laine.ai/the-hidden-terms-problem-what-510-commercial-contracts-reveal/
This article contains general information only and is not legal advice. Consider speaking with a qualified lawyer before signing any contract.