If you’re a business owner exploring a purchase, sale, or major contract, you’ve probably considered using AI or online templates to draft your documents. It’s tempting—fast, seemingly cost-effective, and empowering. And in many ways, AI is a remarkable tool that can help you clarify your goals and understand what’s possible.
But here’s the thing: AI tools are drawing from the same library of forms and templates that lawyers have used for years. The difference? The output is heavily shaped not just by those underlying templates, but by the prompts you provide. When templates are used and are not appropriate or adjusted for the deal at hand, they can intimidate, offend, or even kill an otherwise solid transaction. If the deal does go through, they can cause problems as opposed to help deal or avoid them.
Let me share two real stories on how the wrong template/AI generated forms caused problems. One happened before AI became mainstream. The other is from the AI era. Both illustrate the same fundamental risk of using the wrong form without proper guidance.
The Pre-AI Cautionary Tale: When a 40-Page Template Scared Off the Perfect Sellers
My clients were a very nice elderly couple who lived in a nice house on a large lot in southern California. They were approached by a company that was acquiring residential properties to convert to Residential Care Facility for the Elderly (RCFE) locations. Assuming permitting and zoning allowed an RCFE use, my clients’ home would be ideal for the RCFE’s business.
The RCFE engaged a large national law firm based in Chicago to represent them and prepare their offer. The lawyers in that firm are undoubtedly smart. Their resources and forms for business and asset purchases are most likely very useful for standard commercial transactions. They presented their offer on a standard template asset purchase agreement. All 40 pages of it. The proposed purchase price was higher than what my clients’ property would probably get if they sold to a traditional buyer looking for a home for themselves.
This wasn’t a bad document. It was comprehensive, carefully drafted, and covered every conceivable contingency. It was apparent that the RCFE’s primary concern was whether they would receive necessary approvals and permitting to build an operate their RCFE facility. The buyer’s plan was to scrape the existing home and rebuild their RCFE home. Their draft contract reflected that goal. Basically, after the agreement was signed, the buyer’s wanted to preserve themselves the ability to cancel if they could not obtain necessary government approvals and permitting. That was completely fine to my clients. However, buyer’s contract was designed for complex commercial transactions between sophisticated parties with in-house counsel and years of deal experience. It was extremely intimidating to my clients. That’s when they contacted me.
Before I read the second page, I pointed out to my clients how in southern California most residential purchases can be handled using standard forms and by real estate brokers without the involvement of attorneys. The common standard forms that are used in California are the ones published by the California Association of Realtors organization.
Apparently, negotiations were already too far along, and/or the buyers were not interested in using local resources or the standard CAR forms. I spent numerous hours in redlining the buyer’s form. The buyer’s generally accepted my edits.
However, by the time I got involved, the damage was already done. The 40-page document had intimidated the couple from the start. The buyer’s communications were polite and normal for a commercial business transaction. However, the sheer complexity of the agreement made them feel like they were entering dangerous territory, even though the substance of the deal was straightforward and fair.
In the end, they decided it wasn’t worth it. They walked away from the RCFE company’s offer. Instead, they decided to list the property again and will likely happily sell to a more traditional buyer even though they will probably receive less than what the RCFE company offered. I will most likely not be involved with their sale. My clients will probably work with a local real estate broker and standard CAR forms will probably be used.
The lesson? Using a template that’s inappropriate for the deal at hand—no matter how well-drafted—can kill a transaction. The form didn’t match the comfort level, sophistication, or expectations of the other party. It cost the RCFE company money in pursuing a deal that didn’t close and the loss of my client’s home, which would have been perfect for the RCFE company. Had the RCFE company used standard CAR forms and a local real estate broker familiar with residential transactions, the deal would have closed and both buyer and seller would have kept a lot of money in their pocket, instead of spending them on lawyers.
The Modern AI Story: The Seller-Carried Note That Almost Blew Up a Deal
Fast forward to a few weeks ago. I was representing a seller in a stock purchase transaction. The buyer was acquiring all the shares of a corporation, and part of the purchase price would be financed through a seller-carried promissory note. This is a common structure in business sales.
The buyer’s attorney sent over a draft of the promissory note. From the moment I opened it, I could tell something was off. The document had all the telltale signs of AI generation: odd hyphens appearing in random places, inconsistent bolded text, and a few incomplete statements that trailed off mid-thought. These formatting quirks weren’t deal-breakers in themselves, but they were red flags that made me read the substance very carefully.
The note had a provision stating that the borrower (the buyer) had the full right to assign the note to anyone they wanted. The provision denied the lender (my client, the seller) the right to assign the note.
Let me be clear, this is completely backwards from how promissory notes normally work for a business sale that is financed by a seller-carried note. In a typical seller-carried note, the lender retains the right to assign or sell the note (for example, if they need liquidity or want to transfer it to a trust). The borrower’s ability to assign is usually restricted or prohibited entirely, because the lender agreed to extend credit based on the specific borrower’s creditworthiness and reputation. Think about your dealings with your local bank, would the bank let you the borrower assign your duty to repay them to anyone you wanted?
While I do not know what prompt was used to generate this document, it’s most likely that the buyer asked the AI to draft a note “in favor of the borrower” or “protecting the buyer’s interests.” That’s fine. Representatives for buyers should advocate for their interests.
The buyer probably had no idea what their attorney sent over. But my client, was stunned. This provision was so one-sided and unusual that it came across as either deeply naive or intentionally aggressive. Either way, my client seriously considered walking away from the entire deal.
Fortunately, we didn’t let it derail the transaction. I proposed a standard provision that allowed the lender to assign the note, and the borrower’s ability to assign would be appropriately limited. The deal closed successfully.
Here is the lesson, an AI-generated document had quietly inserted a highly unusual, one-sided term that almost killed a this business sale.
What AI Can and Cannot Do Well in Business Deals
Our firm is not anti-AI. We are actively incorporating trusted and vetted AI tools as appropriate into our work. When clients use AI to explore their options, understand deal structures, or articulate what they’re hoping to achieve, they often come to our initial meetings far better prepared. That’s genuinely helpful.
The problem is that AI is drawing from a vast library of templates, forms, and examples—many of which are designed to heavily favor one side or the other. When you ask AI to draft a document that “protects you” or “favors your position,” it’s going to pull from those one-sided examples. The result may be a contract that’s inappropriately aggressive, unbalanced, or simply not suited to your specific transaction.
These same risks existed in the pre-AI world. AI has magnified the problem, because now anyone can generate a complex legal document in seconds without understanding whether it’s a good document.
The Case for Attorney Review in High-Value Deals
Here’s my takeaway after years of representing clients in business transactions: deals involving significant investments or expenditures deserve review by an experienced attorney who understands that type of transaction and subject matter.
The cost in legal fees up front can save you from costly mistakes, unnecessary friction, or a completely lost opportunity.
If you’re considering a business purchase, sale, or other significant transaction, work with an attorney experienced with the type of transaction you are considering.