Transactional attorneys often face clauses that appear routine but can cause significant legal or financial issues later. Watch the Lawline course "Danger Clauses: Drafting Defensively in Business Contracts," presented by Ryen Rasmus of The Lipp Law Firm, PC, for more on how to spot and handle these red flags.

What Is a Danger Clause?

A danger clause is a contractual provision that appears innocuous but can evolve into a serious problem if left unchecked. These clauses are often standard, overlooked, or misunderstood—until they become a point of contention or litigation.

Examples include:

• Attorney’s fees clauses
  
• Net profits references
  
• Boilerplate indemnity language
  
• Confidentiality terms
  

These clauses act like legal "mushrooms" or landmines: small and easily missed, but with the potential to explode if triggered. Defensive drafting means identifying and resolving these risks before they can cause damage.

Why Are Boilerplate Clauses Risky?

Many transactional attorneys treat boilerplate language as safe, but that mindset invites trouble. The false assumption that boilerplate is always harmless leads to contracts riddled with vague, one-sided, or outdated terms.

Three Key Questions to Ask About Boilerplate:

1. Is it there? Missing clauses can be just as risky as poorly written ones.
2. Is it enforceable? Courts will strike clauses that go against public policy or fail basic legal standards.
   
3. Is it accurate? Even enforceable clauses fail if they misrepresent reality or the client’s business.

Avoid relying on templates without scrutiny. Every contract should be tailored to its real-world context.

How Do Specific Clauses Become Dangerous?

Attorney’s Fees Provisions

Seemingly straightforward, attorney’s fees clauses have ripple effects that can tilt litigation outcomes. Ask:

• Is the clause present?
  
• Is it bilateral or one-sided?
  
• Does it specify “prevailing party” or “substantially prevailing party”?
  
• Does it include post-judgment or pre-litigation fees?
  
• Are caps or ADR processes referenced?
  

Example: A party who wins six out of ten claims may still not be considered the "prevailing party" unless clearly defined. Similarly, ADR contexts may alter recoverability.

Net Profits

Net profits are accounting concepts, not legal ones. If undefined or poorly defined, courts will impose a generic interpretation, often unfavorable to one party.

Red flags include:

• Undefined use of "net profits"
  
• Definitions that lack carve-outs or context
  
• Differences in accounting treatments (e.g., GAAP vs. cash basis)
  

A simple phrase can carry massive financial implications. Always define it explicitly.

What Makes a Clause Unenforceable?

Even a well-drafted clause may not survive judicial scrutiny if it conflicts with public policy or lacks essential legal foundations. While the language may look clean and consistent, attorneys must always ask: Is this clause enforceable? This question is critical when reviewing standard provisions like confidentiality terms, restrictive covenants, and liquidated damages clauses.

Confidentiality provisions are often overbroad, defining confidential information as “anything shared between the parties.” Courts increasingly reject these sweeping definitions, reasoning that if everything is confidential, then nothing is confidential. To be enforceable, such clauses should limit protection to information that is not public, has value to the disclosing party, and is marked or understood as confidential based on context.

Restrictive covenants—such as non-competes and non-solicits—face growing legal limits. For a restriction to stand, it must be reasonable in scope, geography, and duration. A clause that attempts to block someone from working “anywhere, forever” is unlikely to hold up. Courts want to see a legitimate business interest and a proportionate limitation.

Liquidated damages clauses also present enforceability risks. If a contract assigns a flat penalty (e.g., "$5,000 per breach") without linking it to anticipated harm, it may be struck down as a penalty rather than a reasonable estimate of loss. Courts favor clauses that reflect an effort to approximate damages at the time of contract formation—not those designed to punish.

Ultimately, enforceability turns on fairness and clarity. A clause can be well-written and still fail if it’s legally flawed. The best practice is to review each provision and ask: Would this stand up in court? If the answer is uncertain, the clause needs attention before it becomes a liability.

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How Do You Handle Accuracy Issues?

Accurate representation in contracts is more than honesty—it's enforceability.

Use Licensing as a Case Study

Licenses appear in many contracts, not just IP or SaaS agreements. A few vague lines can control how, where, and when a party may use valuable assets.

Watch for:

• Term of license
  
• Scope of use (exclusive, non-exclusive, sublicensable)
  
• Geography
  
• Fees and royalties
  
• Field of use restrictions

When real-world expectations clash with contract language, disputes are inevitable.

How Can You Spot Clauses That Are Missing?

Experienced drafters instinctively expect to see certain clauses—like assignment, choice of law, or indemnity. Newer attorneys can train this instinct by comparing similar contracts filed with the SEC or available through public filings.

Use Comparator Contracts:

• Locate 2-3 contracts of the same type
  
• Identify common provisions
  
• Cross-reference with your draft to spot omissions

This method helps you hear the “silences”—the missing elements that should raise flags.

Which Clauses Are Most Frequently Overlooked?

These are not inherently complex clauses but are often skimmed due to human nature ("T-reading") or assumed simplicity.

Indemnification

• Are there hidden carve-outs?
  
• Are limits buried within mutual terms?
  
• Is it truly reciprocal, or merely appears so?
  

Term and Termination

• Is there a termination right for both parties?
  
• What happens after termination (e.g., licenses, fees)?
  
• Are notice requirements clearly defined?
  

Representations and Warranties

• Are the statements accurate?
  
• Can they be proven or disproven immediately upon execution?
  
• Have you followed up with the client to verify?
  

Failing to read these carefully invites immediate breaches.

What Should You Do with a Stale Contract?

Old contracts drafted years ago—often by a different attorney or the client themselves—can be riddled with outdated, missing, or unenforceable terms.

When Reviewing Stale Contracts:

• Assess severity: Fix typos quietly; raise red flags for missing consideration or enforceability.
  
• Educate the client: Categorize issues as minor, moderate, or critical.
  
• Be surgical: Use amendments or limited edits to avoid overwhelming the client or the opposing party.

Clients often resist change due to inertia or longstanding relationships (“We’ve always done it this way”). Use specific examples to explain potential financial exposure.

How Do You Convince Clients and Opposing Counsel to Accept Changes?

Even when a danger clause is clearly problematic, clients or opposing parties may resist edits.

Strategies to Persuade

1. Visual Examples
   
   • Highlight specific words in a clause that are problematic.
     
   • Use side-by-side comparisons to show improvements.
     
2. Change in Facts or Law
   
   • Point out legal trends or jurisdictional shifts (e.g., non-competes becoming criminally enforceable).
     
   • Highlight new business realities.
     
3. Emotional Appeals (Cautiously)
   
   • Reserved for egregious scenarios like abuse or elder exploitation.
     
   • Use only when reason and facts fail.
     

Use Amendments Instead of Full Redlines

• Amend specific clauses surgically
  
• Label the document clearly (e.g., "First Amendment to Master Services Agreement")
  
• Keep the edit short and focused to avoid spooking the other side
  

How Should You Handle Pushback?

It’s common for clients or opposing counsel to resist proposed edits, even when well-intentioned.

Expect:

• “This has never been a problem before.”
  
• “This is our standard template.”
  
• “Why are you changing this?”

Prepare to Answer:

• "This clause is a danger clause because it’s unenforceable/inaccurate/missing."
  
• "We’re improving clarity or balance to avoid disputes."
  
• "Legal standards have shifted; this clause may no longer be viable."

Encourage collaboration. The clause you fix may alter the other side’s calculus—and that’s fair. Expect seesaws, not unilateral wins.

Key Takeaways

• Danger clauses appear benign but can carry serious risks if ignored.
  
• Boilerplate is not safe by default; scrutinize every word.
  
• Enforceability, accuracy, and presence are the three tests every clause should pass.
  
• Overlooked clauses like indemnification or term and termination can become critical flashpoints.
  
• Use surgical edits and clear reasoning when proposing changes.
  
• Anticipate resistance from clients and opposing counsel, and be ready to explain.

Identifying and resolving danger clauses protects not only your client’s interests but also your professional integrity. For a deeper dive into these strategies, watch the full Lawline course "Danger Clauses: Drafting Defensively in Business Contracts," presented by Ryen Rasmus of The Lipp Law Firm, PC.

The content of this article is provided for informational purposes only and does not constitute legal advice.

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