AI-generated business contracts may look professional but contain errors, omissions or provisions that are unenforceable under California law. White and Bright, LLP examines the risks of using AI to draft commercial leases and other business agreements, what happens when disputes arise and why legal review remains important.

Artificial intelligence can draft a business contract in seconds. Ask ChatGPT to prepare a commercial lease, independent contractor agreement or purchase agreement, and it will produce a document that looks remarkably professional, complete with numbered sections, legal terminology and provisions that seem to cover every contingency.

The appeal is obvious for business owners thinking about saving time and legal fees.

But what happens when a dispute arises and the contract doesn't say what the parties thought it said? Or when a seemingly standard provision turns out to be unenforceable under California law?

The problem with AI-generated contracts isn't always that they're obviously wrong. It's that they can look right while getting important details wrong. And those mistakes may not become apparent until thousands of dollars, valuable property rights or an important business relationship are at stake.

When a Professional-Looking Contract Falls Apart

Consider this example involving a small business owner leasing commercial space: The owner uses AI to prepare a lease agreement, providing details about the monthly rent, lease term and security deposit. The resulting document looks comprehensive. Both parties sign it, and the tenant moves in.

A year later, the tenant stops paying rent and abandons the property. The landlord turns to the lease to determine what damages can be recovered, only to discover that its default and remedies provisions are incomplete or inconsistent with California law.

California Civil Code sections 1951.2 and 1951.4 establish important rules governing a commercial landlord's remedies following a tenant's breach. Depending on the circumstances, the landlord's ability to recover damages or continue collecting rent can depend on statutory requirements and the lease language.

An AI-generated agreement may not adequately account for these distinctions.

Now the landlord faces a dispute that could have been avoided or better managed with a properly drafted agreement.

The same problem can arise in construction contracts, business purchase agreements, vendor agreements and other commercial transactions. An indemnification clause might shift more liability than intended. A termination provision could conflict with another section. An agreement might fail to address what happens when one party doesn't perform. These are not necessarily errors that a business owner would recognize by reading the document.

AI Slop in Legal Contracts

The term "AI slop" is often used to describe low-quality, mass-produced AI content that appears polished but lacks substance or accuracy. In contract drafting, AI slop can be particularly dangerous because the language may sound authoritative even when it is vague, contradictory or inappropriate for the transaction.

For example, AI might:

• Combine provisions from different jurisdictions without accounting for California law.

• Include broad indemnification or limitation-of-liability clauses that create unintended consequences.

• Omit important protections specific to the transaction or industry.

• Generate conflicting provisions concerning payment, termination, dispute resolution or remedies.

• Misstate legal requirements or cite statutes that don't apply.

Even when every individual clause sounds reasonable, the agreement in its entirety may not accomplish what the parties intended.

Under California Civil Code section 1641, contracts are generally interpreted as a whole, with provisions read together to give effect to the parties' intentions where reasonably possible. That means a problematic clause cannot always be evaluated in isolation. How it interacts with the rest of the agreement matters.

And unlike an experienced business or real estate attorney, AI doesn't independently investigate the transaction, identify the parties' negotiating priorities or exercise legal judgment about which risks need to be addressed.

Can a Contract Be Challenged Because AI Got it Wrong?

Suppose a business owner signs an AI-generated agreement and later discovers that an unfavorable provision was included by mistake. Can the owner argue that the contract shouldn't be enforced because AI drafted it?

Generally, the mere fact that AI was used to create a contract doesn’t make it invalid. California law recognizes circumstances in which contracts may be challenged or modified, including certain types of mistakes, fraud and other defects affecting consent.

For example, California Civil Code section 3399 permits a court to reform a written contract in certain circumstances when, because of fraud or mutual mistake, or a mistake by one party that the other knew or suspected, the writing does not express the parties' actual intentions.

But proving grounds for reformation is different from simply arguing that an AI tool produced an unfavorable contract. A business owner who knowingly signs an agreement may still be bound by its terms, even if those terms were generated by AI or weren't fully understood.

The practical lesson is significant: Discovering a drafting error after a dispute begins can be much more complicated and expensive than addressing it before signing.

AI-Generated Legal Errors in Court

Although litigation specifically involving AI-drafted business contracts is still an emerging area, courts have already addressed the consequences of relying on inaccurate AI-generated legal work.

In June 2026, the U.S. Court of Appeals for the Ninth Circuit sanctioned two attorneys in Lnu v. Blanche after court filings contained nonexistent cases, inaccurate quotations and misrepresentations of legal authorities generated through AI.

The court emphasized that using AI was not itself the violation. The problem was submitting inaccurate legal work without proper verification and failing to candidly address the errors.

The case involved court filings rather than a commercial contract, but it illustrates a broader concern that AI-generated legal material can appear credible while containing serious inaccuracies.

California lawmakers have also responded.

In September 2026, Gov. Gavin Newsom signed Senate Bill 574, which establishes requirements governing attorneys' use of generative AI beginning Jan. 1, 2027.

Among other provisions, the law prohibits attorneys from delegating the practice of law to AI and requires reasonable steps to verify the accuracy of AI-generated materials and correct errors. It also addresses the protection of confidential information.

The legislation applies to legal professionals, not business owners preparing their own contracts. Nevertheless, it reinforces an important distinction between using AI as a drafting tool and relying on it to exercise legal judgment.

Where AI Can Help, and Where Businesses Should Be Careful

AI can be useful in the contracting process. It may help business owners organize transaction details, identify topics to discuss with an attorney or understand unfamiliar contractual terminology.

But there is a difference between using AI to prepare for a transaction and trusting it to determine the parties’ legal rights and obligations.

Businesses should be particularly cautious when agreements involve significant financial commitments, commercial real estate, long-term obligations, personal guarantees, intellectual property, indemnification or potential litigation.

Businesses should also exercise caution when uploading existing agreements, confidential financial information or proprietary business details into AI platforms without understanding how that information will be handled.

What if You've Already Signed an AI-Generated Contract?

If a dispute arises under a contract created or modified with AI, the first step is to understand what the agreement provides and how California law applies.

An attorney can evaluate whether the disputed provisions are enforceable, whether the contract contains ambiguities or inconsistencies, and whether there are grounds for interpretation, reformation or other legal remedies.

The fact that AI drafted the contract may be relevant to understanding how an error occurred, but it does not automatically determine the outcome.

White and Bright, LLP’s attorneys advise businesses, property owners, landlords, tenants and developers on commercial agreements, real estate transactions and contract disputes throughout San Diego County and Southern California. Our experience in both transactions and litigation provides insight into how contractual provisions work when business relationships run smoothly and when they break down. Whether you're drafting a new contract or dealing with one where AI got it wrong, contact the human lawyers at White and Bright for assistance.

AI-Generated Contracts Frequently Asked Questions

1. Are AI-generated contracts legally binding in California?

Yes. Contracts created using AI can be legally binding in California if they satisfy the requirements for an enforceable agreement. The use of AI does not automatically invalidate a contract. However, individual provisions may be unenforceable, ambiguous or inconsistent with California law.

2. Can I use ChatGPT to draft a commercial lease?

Business owners can use ChatGPT and other AI tools to generate commercial lease agreements, but doing so carries risks. AI may overlook important California legal requirements or fail to address provisions involving tenant defaults, maintenance obligations, rent adjustments, personal guarantees and dispute resolution. An attorney should review the lease before it is signed.

3. Who is responsible for mistakes in an AI-generated contract?

Generally, the parties signing a contract remain responsible for understanding and complying with its terms, regardless of whether AI was used to draft it. Responsibility for a particular error or resulting damages depends on the circumstances, including who prepared the agreement, what representations were made and whether legal grounds exist to challenge its provisions.

4. Can an AI-generated contract be corrected after it has been signed?

Yes, in some circumstances. Parties may mutually agree to amend a contract. California law also allows courts to reform agreements under certain conditions, including mutual mistake or fraud. However, an unfavorable or poorly drafted provision does not automatically qualify for correction simply because AI generated it.