Business Contracts


A business contract is a mutual agreement between you and another party (such as your suppliers, customers etc). The agreement legally obliges you to carry out your obligations under the contract and provides you with the right to ask for the other party to perform their side of the bargain.

Contracts can be made orally as well as in writing. An oral contract is just as valid as a written contract however it is not as easy to prove in court. There are certain types of contracts (such as a contract for sale of property or a guarantee) which can never be made orally. Written contracts can exist on paper as well as electronically.


Why are business contracts important?

Business contracts are important because they set out what you must do and how you must do it. They also tell you what you are entitled to receive in return.

Apart from the words said or written in your contract, there are certain rights and obligations which are read into contracts by courts. These are known as ‘implied terms’. Common examples of implied terms include:

  • Selling goods that match their description.
  • Selling goods that are of satisfactory quality.
  • Selling goods that are fit for the purpose for which they were bought.
  • Providing services with reasonable care and skill.
  • Completing tasks within reasonable time and for a reasonable price (in situations where a contract is silent on completion time or price).

If you fail to carry out any of your obligations under the contract then the other party can sue you. Similarly, you can sue the other party if they fail to comply with the terms of the contract.

Contracts are also useful for protecting yourself against being sued or limiting the amount which you would pay if you get sued. However, limitation or exclusion of liability is sometimes prohibited by law and at other times must be reasonable.


When is a business contract likely to arise?

Business contracts can arise whenever there is an agreement between you and another party to do business or provide a business function. In order to create a contract which is legally recognised, you must have three elements:

  • Both you and the other party making the contract must intend to create a contract.
  • There must be an offer and a subsequent acceptance. The mere displaying of goods, for example in your brochure, does not constitute an offer.
  • Something of value (not necessarily money) must be exchanged between you and the other party or there must at least be a promise of such an exchange in the future.


When are business contracts used?

The most common usage of contracts in a business is for:

  • Employing people or hiring independent contractors
  • Hiring, buying or selling goods or services
  • Leasing, buying or selling property
  • Selling your business or buying someone else’s business
  • Creating partnerships or joint ventures
  • Franchising
  • Creating confidentiality agreements, otherwise known as non-disclosure agreements (NDAs) used for example where confidential information is given to a potential contracting party.


Terms and Conditions

Getting your terms and conditions right is very important. They outline the terms of the business relationship with your customer and they should be as clear and unambiguous as possible so as to avoid any misunderstandings. The nature of your business will determine the range of terms and conditions that you provide. In relation to online businesses, they tend to have a terms and conditions page outlining the agreed terms for the use of the website, whereas contracts for the sale of goods or services include terms and conditions relating to price, payment instructions, delivery and so on. More complex transactions such as commercial leases or the sale of a business require more complicated terms and conditions and it would be worthwhile speaking to a legal advisor.


Where to look for help?

The Office of Fair Trading (OFT) offers some useful guidance to help businesses establish clear and fair contract terms:

  • Consider customer expectations
    • Avoid terms that are easy to miss or misunderstand
    • Ensure the customer has enough time to accurately interpret the terms
  • Leave no surprises in the small print
  • Pay close attention that key contract terms are clear and non-ambiguous
    • Do not over-complicate the deal. Ensure that customers can easily understand the implications of the terms.

To download the full OFT guide, click here.

There are a number of options you can pursue to incorporate terms and conditions to your website or contracts, and they include:

  • Copying another organisations terms and conditions, provided that they can be used or modified without copyright infringement.
  • Obtaining templates online.
  • Speaking to a legal advisor (recommended) – Browse our Legal Services Directory for a list of organisations.