Whether you are hiring employees, contracting with suppliers, or providing services to clients, a clear and enforceable contract is the foundation of any successful commercial relationship.

However, many businesses underestimate how quickly a poorly structured agreement, or no formal agreement at all, can lead to expensive disputes, weakened legal protections and damage to business relationships.  

Understanding the basic principles of commercial contract law is key to safeguarding your business interests and minimising disputes. Here are three important points to consider:

1. A Contract Does Not Need to Be Complex – But It Must Meet Legal Standards

Contrary to common belief, a valid contract does not have to be lengthy or filled with legal jargon. However, to be enforceable under English contract law, it must meet certain legal requirements.

A valid business contract must include:

  • Offer and Acceptance: A clear offer by one party and an unequivocal acceptance by another.
  • Consideration: Something of value must be exchanged, whether goods, services, money, or a combination.
  • Intention to Create Legal Relations: Both parties must intend to enter into a legally binding agreement.
  • Certainty of Terms: The terms of the agreement must be clear, complete, and unambiguous.

Without these elements, an agreement may be unenforceable or difficult to rely on - leaving your business exposed if the relationship breaks down.

Informal arrangements, such as verbal discussions, handshake deals, or even chains of emails, often lack the clarity and evidential strength needed to resolve disputes and enforce the terms of your agreement.

2. Verbal Agreements Vs Written Contracts: Understanding the Legal Risks

Verbal agreements are recognised under English law and, in some cases, can be enforced. However, without a clear written record, establishing the terms of such an agreement, or even proving it exists, can be difficult.

In commercial contexts, this often leads to disputes over what was agreed, by whom, and when. Where payments are missed or obligations are breached, the absence of documented terms can severely limit your ability to take action.  

Written contracts provide:

  • A defined record of the parties’ obligations.
  • Agreed terms, covering scope, payment, timescales and performance.
  • A reliable basis for enforcement or dispute resolution.

In short, a written agreement is the most reliable way to define expectations, limit exposure and support enforcement should litigation or dispute resolution become necessary.

3. Poorly Drafted Contracts Often Create More Problems Than They Solve

Using generic templates, reusing old contracts, or copying clauses from online sources can lead to significant problems. What appears to be a cost-saving measure often results in gaps, inconsistencies, or unenforceable provisions. Contracts must be tailored to the specific transaction and business relationship.

Common risks include:

  • Ambiguity: Vague or unclear wording may create conflicting interpretations.
  • Omissions: Clauses addressing termination, limitation of liability, indemnity, or governing law may be missing or inadequate.
  • Unenforceable Terms: Clauses that breach statutory protections, such as attempting to exclude personal injury caused by negligence, can render parts, or the entirety of the contract, unenforceable.  

Every contract should reflect the specifics of the arrangement: the subject matter, the commercial objectives, and the risks involved. A contract that is not tailored to those factors may fail to protect your position, and in some cases, create new liabilities.

At Pre-Law, we offer fixed-fee services to assist with drafting, reviewing and negotiating business contracts.  

To find out how we can support your business, contact us on 01524 907100, by email at info@pre-law.co.uk, or via our online enquiry form.