AI vs. Legal Specialist. Lawyer Checks AI-Generated Contract
We decided to check for ourselves how good artificial intelligence is in practice. We composed a prompt:
“Act as a legal expert and draft me a rental agreement for the villa I plan to rent in Bali. I will fill in all necessary individual information myself, so you can merely designate the information about the parties. The agreement should comply with the laws of Indonesia.”
We sent the resulting agreement to a lawyer for review and asked them to assess the agreement and make corrections to protect the client’s interests and funds. Let’s break down several points with examples:
1. Status of the Object and Landlord's Guarantees
AI: “The Landlord declares and guarantees that the rental object is not pledged, in dispute, under arrest, or subject to third-party claims.”
This is a correct formulation that provides some protection, but it is a general statement with no legal consequences. If it turns out later that the object was transferred with violations of third-party rights, this clause alone does not protect the tenant.
Lawyer: “The Landlord declares that they are the legal owner or a person legally authorized to lease the rental object, and that the object is not in dispute, pledged, under arrest, or subject to third-party claims.”
The lawyer clearly established the right to handle the object and linked the statement not just with a fact but with the legal status of the party. This is fundamentally important since leasing is often handled not directly by the owner.
2. Termination of Contract: Words vs. Mechanism
AI: “The contract may be terminated before the end of the rental period if one of the parties commits a breach and fails to rectify it within ___ days of receiving written notice.”
AI used a standard formulation, but it does not answer key questions:
what exactly is considered a breach,
what happens with payments,
whether the obligations remain after termination.
As a result, such a clause can easily be interpreted against the client or be a loophole for unscrupulous landlords. The lawyer identified this vulnerability and corrected it.
3. Deposit
AI: “The deposit will be returned to the Tenant no later than 10 calendar days after the contract ends, minus any obligations of the SECOND party (if any).”
Formally, it looks understandable, but the phrase “minus obligations” is not explained, which means it can be freely interpreted by the owner, providing ample opportunity for abuse. Therefore, it is important to state that these deductions must be substantiated, agreed upon in advance, and informed two weeks beforehand.
4. Force Majeure: List of Events vs. Procedure
AI: “The party encountering force majeure is obliged to notify the other party in writing.”
A classic formulation that turns the entire clause into useless text due to the lack of comprehensive specification. Not specifying deadlines for notifying the other party leaves it open-ended. It also doesn't state the consequences of these force majeure circumstances. With floods being common in Bali, it’s critical to understand the importance of such a clause.
5. Tax, Service, and Expense Obligations
AI completely ignored the clause on responsibility for tax and utility payments, which is crucial in long-term contracts. Who pays for electricity, gas, consumables, cleaning? This can end up as a surprise and a hefty bill, so the lawyer had to make these adjustments.
6. Usage Restrictions
AI: “The Second Party may not sublease or assign rental rights without the written consent of the First Party. House guests and third-party access to the villa are not allowed.”
There’s no need to comment here. In its attempt to protect the Tenant from commercial activity, AI just prohibited them from inviting guests, as the clause evidently bans visits by outsiders not mentioned in the contract.
7. Violation of Legal Requirements
In Indonesia, there is a direct legal requirement that AI did not account for; documentation involving foreigners must be in a bilingual format, with the primary text in the national language and the secondary, often in international English. The Indonesian version has priority. This is not critical if the contract is only in the local language. Much more complicated consequences could arise if the contract is drafted and signed in foreign languages, creating a risk of invalidation and loss in disputes if they arise.
In conclusion, we understood that AI can write a stereotypical contract that looks correct, but it doesn’t understand how the contract will work in real life or spot potential pitfalls in wording. It doesn’t identify contentious issues, know local rules, or anticipate where the client might lose money. A lawyer, on the other hand, drafts a contract to protect a person in real scenarios, not just on paper. So AI is a handy assistant, but not a replacement for a professional when real risks are involved.
