What is an AI contract generator? A complete guide

Creating a contract manually is a tediously time-consuming task that can take days or even weeks. You'll need to structure and format the document, include the correct clauses, and ensure everything is legally airtight. Use the wrong terms or miss important details? You could have an unenforceable contract on your hands, potentially landing you in legal hot water.

So consider using an AI contract generator instead. It's different from templates and other traditional tools because it creates compliant and customizable legal agreements based on the prompts you give it.

Here's everything you need to know about this technology, how it works, and why you need it.

So, what is an AI contract generator?

You've almost certainly used ChatGPT by now, either for work or fun. Well, an AI contract generator functions in pretty much the same way, though it's specifically designed to create contracts, agreements, and other legal documents from scratch. Just tell it what you want to put in your contract, and it takes care of everything for you. The generator automatically creates the document based on your requirements, including relevant clauses and terms, and structures it in a logical and legally recognized format.

The good news is that an AI contract generator is really easy to use, even if you don't have a technical background. Once it drafts the first version of a contract, you can customize it further simply through chat messages with an AI assistant, meaning you'll end up with a document that's uniquely yours. That makes it different from contract templates, which are still incredibly valuable but not as flexible.

If you're unsure how your contract should look, AI can also help, providing intelligent suggestions that make sure you get everything just right. You can even upload your existing contracts and reformat them into dynamic documents that you can edit in real time.

How does an AI contract generator work?

Here's the technical bit: An AI contract generator uses a large language model (LLM), which is trained on massive amounts of contracts and other legal documents from multiple sources. The model predicts what a great contract should include based on the patterns and structures from these texts.

The generator then drafts a new document from the prompts you provide, using natural language processing (NLP) to understand your requirements and create precise, context-aware contract language.

The result is a legal agreement tailored to your needs — something you can't get from contract templates or other traditional tools.

Let's say you own a property management company and want to create a lease for a tenant. You could use a rental property lease agreement template that outlines some basic terms and conditions for the agreement. However, an AI contract generator is your best bet if you need a more bespoke document that requires custom clauses and other details.

Here's an example of how everything works:

1. Tell the generator's AI assistant all the information you want to include in your lease, such as the tenant's name, the property's address, and the monthly rental amount. You might use a prompt like the following: "Create a lease for a house located at 100 Sunny Street. The lease has a 12-month duration and starts on July 1, 2025. The rental amount is $2,000 a month. No pets are allowed on the property."
2. Wait for the generator to do its thing, which usually takes a few seconds.
3. Review the first draft of the lease and then refine it further by talking to the AI assistant — just like you would to a real human. For example, you might say, "Add a clause about a $100 late fee if the tenant fails to pay rent on time," or "Include information about the security deposit, which is one month's rent." You can do this until you get your contract just the way you want it.
4. Not sure what to include? Smarter AI contract generators offer contextually relevant suggestions on how to improve your document, such as “Include details about utilities and who is responsible for paying them.”
5. Once you're happy with your agreement, you can print it, share it, or, if you're using a tool like AgreementGen, send it directly to the tenant to eSign.

Leases are just one of many document types you can create, review, and manage with an AI contract generator. You can also use this technology for:

• Vehicle bills of sale
• Independent contractor agreements
• Non-disclosure agreements (NDAs)
• Payment plan agreements
• Rent-to-own contracts
• Service contracts.

Potential benefits of AI contract generators

Some of the advantages of AI generators for contracts include:

Ease of use

Like we said before, no training is needed to use one of these tools. You don't have to be an attorney, legal expert, or developer.

Save time

Eighty-nine percent of companies struggle to manage a high volume of simple contracts. AI makes life easier by reducing the amount of time it takes to create legal agreements.

Reduce human error

From misspelling names to overlooking crucial legal information, humans often make mistakes when manually creating contracts. In fact, the average legal document has 118 errors, according to one recent study. While no AI tool is 100% reliable, you can reduce the likelihood of human error and create more accurate, consistent, and compliant documents.

Simplify editing

Legal agreements can be a pain to edit, especially if they're static. Take PDFs, for example. This file type preserves a contract's layout and formatting, so making changes the way you want is tricky. The best AI generators can convert static docs to dynamic ones, giving you more flexibility and customization.

What to consider when using an AI contract generator

Here are some things to think about when integrating one of these tools into your business:

AI reliability

No AI tool is entirely accurate, at least not yet, so bear that in mind when using a generator to create contracts. Always cross-check agreements before sending them, and ask an attorney to review legal text if necessary.

Legal requirements

No legislation in the United States prohibits using AI contracts, meaning they can be legally valid. However, make sure language and clauses comply with the law by manually reviewing your documents.

Data security

Choose an AI contract generator that takes data security seriously, especially if it integrates information from your CRM and other systems. You'll want a tool that encrypts sensitive data and adheres to SOC 2 and other compliance standards.

Implementation

Like any new tech, an AI contract generator may take a little while to implement into your business. While there's no steep learning curve, make sure your team knows how to use a tool's features so they can get the most value from it.

Why you need AgreementGen

If you're familiar with ChatGPT, you'll definitely be able to use an AI contract generator. This new technology creates contracts and other legal agreements based on your prompts, providing a fully interactive and streamlined experience. As a result, you can reduce human error, save time, and produce legally valid agreements that simplify your document workflow.

AgreementGen, currently in beta, understands document structure and provides intelligence assistance when creating contracts, making it a valuable addition to your tech stack. Try it for free today and see how it can benefit your business.

Read more of our blog posts about AI contract generators:

• What if your next contract was a conversation?
• Why AI contract generators are a game changer for small businesses
• How to slash contract creation time and costs with AI