How to read a contract or agreement

Contracts and agreements are basically impossible to read without training or some kind of methodology. Over the years, I’ve reviewed many contracts, and have settled on the following methodology.

• Start with the definitions.
  • It can be useful to open the contract twice, in two separate side-by-side windows, and keep one on the definitions for easy access.
  • Capitalised terms are usually defined (e.g., “The Customer”).
  • When in doubt, look up terms you don’t understand and take notes as you go.
• As you read each clause, write in a separate document a plain English simplified explanation of what you’ve just read.
  • When you do this, you clarify your understanding of each statement.
  • This also makes it easier to understand how separate statements relate to each other.
  • Keep track of the relevant sections and clauses as you take your notes. Copy the numbering from the agreement (e.g., “Exhibit 16.1 § iii says we must…”).
• After you’ve reviewed and rewritten the entire document, read your summary in its entirety to form a holistic understanding of the document.
• Read the original document again, and compare it to your summary: how confident are you in your interpretations?
• Most of the information in most contracts is uninteresting. It is sometimes helpful to write a summary of your summary when sharing or discussing the agreement with others.
• Ask ChatGPT to explain complex or arcane clauses.
  • A good prompt is something like “You’re a lawyer for a B2B SaaS company reviewing this clause from a Partnerships or channel agreement. Explain it to me in simple English.”
• Always have a lawyer review any agreements before you sign them. To improve your skills with reading contracts, send them your summary and ask them to correct or annotate any misinterpretations. All good lawyers will be happy to do this.

I am not a lawyer, and I’m definitely not your lawyer, so this is not legal advice. Retain and talk to a lawyer.