Risks of Using AI or Template Agreements

(and Why Legal Advice Matters)

Artificial intelligence (“AI”) tools and online contract templates are increasingly used to create legal agreements, including non-disclosure agreements, employment contracts, and purchase agreements. While these resources are often marketed as low-cost and convenient, they raise a number of significant legal and practical concerns that are important to understand before relying on them.

For a broader overview of AI-related considerations, please see our related article, “Using Artificial Intelligence (AI): Important Things To Know”, and for some quick tips on effective use of AI, see “Practical Tips and Considerations When Using AI“.

 

Agreements May Not Be Tailored to Your Situation

Both AI-generated documents and online templates are designed for general use. While they are great for providing a basic framework based on existing data and standard forms, they do not assess your specific circumstances, business objectives, or risk tolerance.

As a result, these agreements may:

  • Use overly broad or overly narrow language,
  • Include terms that are not relevant,
  • Omit important provisions, or
  • Fail to reflect the actual relationship between the parties

Even where a document appears complete, it may not address the issues that matter most in your situation. Missing or incomplete terms can create uncertainty and increase the likelihood of disputes or other issues down the road.

 

Errors, Omissions, and Inconsistencies

Although AI-generated agreements and templates can appear polished and authoritative, they may contain errors or omissions that are not readily apparent, particularly to someone unfamiliar with the relevant legal concepts.

Common issues include:

  • Incorrect legal assumptions,
  • Missing key clauses, such as provisions relating to definitions and interpretations, limitation of liability, dispute resolution, and termination rights, and
  • Conflicting, outdated, or internally inconsistent language

These issues can significantly affect how an agreement is interpreted or enforced — and may only become apparent when a dispute arises.

 

Jurisdictional Issues

Legal requirements often vary significantly by jurisdiction. For example, the enforceability of certain clauses, statutory obligations, and consumer protection rules differ across provinces and countries.

AI tools and templates may:

  • Reflect foreign law (often US law) or blend multiple jurisdictions
  • Rely on outdated or irrelevant legal requirements
  • Omit mandatory provisions
  • Include clauses that are unenforceable or inappropriate in Ontario

Including a clause that is unenforceable under Ontario law, or omitting one that is required, can create significant risk to the validity of the agreement.

 

Confidentiality and Data Security Concerns

Using AI tools and online template platforms may involve entering sensitive, proprietary or confidential information into third-party systems. Depending on the platform, that information may be stored, processed, or used to train future AI models, with limited transparency about how information entered into these platforms is tracked, retained, or may be later used.

This creates particular concerns where proprietary business information, personal data, or legally sensitive information is involved. There is also a risk that sharing confidential information through a third-party platform could constitute a waiver of solicitor-client privilege, meaning that information you may have discussed with a lawyer in confidence could lose its protected status and be used against you. For example, prompts, search history, uploaded documents, or other usage data could potentially become relevant in future disputes, investigations, or regulatory proceedings, and could even be used against evidence you.

 

Lack of Integration with Other Legal Documents

Agreements do not exist in isolation. Rather, they often need to align with a broader set of legal and business arrangements, including:

  • Other documents forming part of the same transaction,
  • Existing contracts with customers, suppliers, or employees,
  • Corporate governance documents such as articles of incorporation or shareholders’ agreements, and/or
  • Regulatory obligations applicable to the business or industry

AI-generated documents and templates do not account for these broader considerations. An agreement that conflicts with an existing contract, or that is inconsistent with a corporation’s governing documents, can create significant legal complications.

 

No Accountability

Lawyers are subject to professional obligations, competence standards, and mandatory insurance requirements, and owe duties of loyalty, confidentiality, and competence to their clients. If a lawyer makes an error, professional liability insurance and regulatory accountability provide meaningful recourse.

AI tools and template providers are not subject to these standards. They do not owe a duty of care, and if an AI-generated or template-based agreement proves ineffective or incomplete, there may be little or no recourse available.

 

False Economy of Low-Cost Drafting

AI tools and templates are often marketed as affordable alternatives to legal services. In practice, however, agreements that are incomplete or improperly drafted can lead to:

  • Costly disputes or litigation
  • Additional legal expense to interpret, revise, or enforce the agreement
  • Unenforceable terms that leave you without the protection you expected
  • Missed protections or rights
  • Unintended personal liability or adverse tax consequences

In many cases, the cost of resolving problems that arise from a deficient agreement significantly exceeds the cost of obtaining proper legal advice at the outset.

 

When AI Tools May be Appropriate for Drafting Agreements

There may be some circumstances where AI tools may be appropriate starting places for drafting an agreement, provided legal review still occurs where appropriate, such as:

  • Lower-risk or routine transactions,
  • Internal reference purposes,
  • Early-stage discussions or issue spotting, or
  • Situations where the cost and complexity of a fully customized agreement may not be proportionate to the transaction.

Even in these situations, care should be taken to ensure that:

  • The document is reviewed for compliance with the applicable jurisdiction,
  • Party-specific details and transaction terms are accurately reflected,
  • The agreement is internally consistent, and
  • Confidential or sensitive information is not unnecessarily disclosed

The more significant the transaction, financial exposure, relationship, or potential liability, the more important it becomes to obtain legal advice and a properly tailored agreement.

For tips and other practical considerations to keep in mind in the event you are using AI, please see our related article, “Practical Tips and Considerations When Using AI“.

 

Final Thoughts

Drafting an agreement involves more than assembling standard clauses. While AI tools and templates can be a useful starting point for understanding the general structure of a type of agreement, they are not a substitute for legal advice.

Before relying on any AI-generated or template-based agreement, consider whether it has been properly reviewed, tailored to your situation, and aligned with applicable law.

Engaging a lawyer helps ensure that your agreement is:

  • Tailored to reflect your specific circumstances and objectives,
  • Legally sound and enforceable,
  • Strategically structured to protect your interests, and
  • Negotiated and reviewed with professional judgment, accountability, and a duty of loyalty to you

A lawyer does not simply produce a document. They provide advice, represent your interests, and give you the confidence that your agreement will work when it needs to.

 

If you have questions about the use of AI or template-based contracts, or would like to discuss your legal needs, our team at CARREL+Partners LLP is here to help guide you every step of the way. Get in touch today to discuss your situation.

Contact Us
May we leave you a voicemail at this number?

 

Disclaimer:

This publication is for general information purposes and is not to be taken as legal advice. The information within is current only to the date of publishing. The use of AI in legal drafting is an evolving area, and the risks associated with AI-generated or template-based agreements will vary depending on the specific tool, the nature of the agreement, and the applicable jurisdiction. Legal requirements may differ across provinces, including Ontario. Businesses and individuals should consult qualified legal counsel to assess their specific situation. If you have any questions regarding article content, please contact the author(s) directly.