How to read a counterparty's redline

You send a term sheet, and a week later it comes back with the other side’s changes. The usual next step is to open it in Word, scroll through the coloured text, and reply with a few comments. That works for a short document with a handful of edits. For anything longer, a quick read misses things, and the misses are the ones that cost money later.

Here are five checks worth doing every time.

1. Compare the text, not just the markup

Tracked changes only show what was changed while tracking was on. If someone turned it off, edited a clause, and turned it back on, the document will show a clean paragraph that no longer says what you wrote.

This is not usually bad faith. Counsel often clean up wording before sending, or accept their own internal edits. But an untracked change to a payment term is more dangerous than a marked one, precisely because nobody is looking at it.

So always compare their version’s text with the version you sent, independently of the markup. Any difference that is not a tracked change deserves a closer look than the ones that are.

2. Read replacements as one change

Word records “replace 30 with 90” as two separate edits: a deletion of “30” and an insertion of “90”. If you decide on them separately, it is easy to accept the insertion and reject the deletion and end up with a clause that says both numbers.

Group each deletion with the insertion next to it and decide on the pair. The question is never “do I accept deleting 30?” but “do I accept 90 days instead of 30?”

3. Read each comment with the text it is attached to

A comment on its own (“we can’t accept this as drafted”) is not actionable. It only makes sense next to the exact words it is anchored to. When you review comments in a list, take the anchored clause with you, so the answer you write addresses the clause they actually objected to.

4. Decide each change explicitly

For every change, there are three answers:

• Accept it as written.
• Reject it, restoring your original wording.
• Counter it, replacing their wording with a third option.

Write the decision down for every change, including the small ones. “Accept” is a decision. Silence is not, and silent acceptances are where unfavourable terms slip through. If you have prepared a negotiation position in advance, such as a walk-away point or the range you can live with, check each decision against it before you reply.

5. Send back a document, not a list

Once you have decided, apply the decisions to their document as tracked changes in your own name: accepted insertions kept, rejected ones removed, counters written in. Resolve the comments you have answered instead of deleting them, so the thread of what was agreed and why stays with the document.

Avoid retyping the document from scratch or pasting your clean version over theirs. A rebuilt file throws away their comments and their view of what moved, and the next round starts with an argument about what changed instead of a discussion of the changes.

Keep every version: yours, theirs, and each round between. When someone asks months later why the payment terms say 45 days, the history answers the question.

A note on internal notes

If your term sheet draft contains internal notes, such as your walk-away position or the reasoning behind a concession, make sure they are not in the file you send. Keep them in a separate section that never goes into the outgoing document, or in a separate file altogether. A walk-away number in a document the other side can read is no longer a walk-away number.

The short version

1. Compare their text with what you sent, tracked or not.
2. Treat each replacement as one change.
3. Read every comment with its anchored clause.
4. Accept, reject or counter each change, explicitly.
5. Reply with their document plus your tracked decisions, and keep every version.