This question and answer was originally posted on Quora.
Usually, in any screenplay there are at least a few elements - a character, a sequence, a particular line of dialogue - that you do like. Begin with those and give them special emphasis. Then give a few simple reasons why the screenplay wasn't for you. Don't give too many specifics unless asked for more detailed feedback. It also helps to emphasize that your's is just one opinion. Perhaps you just aren't a fan of that particular genre.
In the end, its best to be honest but gentle. Don't say, "I didn't like it because..." Instead say "it didn't work for me because..." Frame your response around the work itself, not the writer.
If your friend is a professional screenwriter he or she may want more detailed feedback. A professional should be able to take negative feedback, and if you sugar coat it, you're doing nobody any favors. Tell them specifically which elements you didn't like. Perhaps you didn't care about the main character. Perhaps you didn't find certain parts funny (or scary, or dramatic) in the way s/he intended. Be as specific as possible.
Above all, don't try to pretend you liked it by using slippery phrases. Personally, I know readers didn't love my work when they say things such as...
1. "It's interesting." Have you ever seen a blurb on a movie add that read, "IT"S INTERESTING!" Film is an emotive medium. "Interesting" means I've failed.
2. "The writing is really good." This tells me that the reader enjoyed my grammar, sentence structure, and descriptions of sets. Unfortunately, they didn't like the story, characters or theme.
3. "We have something just like it in development." This is what studio executives say when they are passing on my script. "Something just like it" could mean they have a project that also features a young male protagonist who lives in the United States.
4. "Great work! Thank you so, SO much." Danger! This is what your employer says when you are about to get replaced by another writer. Beware sincere praise of your work ethic and heartfelt gratitude for your efforts. They are about to get rid of you.
How do I know when somebody genuinely loves the script? It's easy. You can see his or her eyes light up. They recount parts of the story they liked best, in the same way they recount their favorite moments in a great film or a fantastic TV episode. "I really liked the part when..!
When studio executives like my work they say, "I LOVE it!!! I just have a few notes..."