If you sell a product or service of any kind, you will need a contract with your clients.  A contract is a legally binding agreement between you and the customer.  It outlines the obligations between you and your clients, providing a clear roadmap for a successful working relationship. While it’s tempting to rely on a handshake or a quick email, a professionally drafted contract is your single most important tool for protecting your business and ensuring clarity. Once a contract is signed by both parties, they are legally bound to comply with its terms.

What makes a contract legally binding?

The basic principles of any contract are:

• The offer – the product or service that will be provided.
• Acceptance of the offer – agreement to proceed.
• Consideration – the product or service that will be provided and what is expected in return.
• Intent to create legal relations – both parties agree they are entering into a contract.
• Contractual capacity – both parties have the capacity to enter the contract.

The needs of each business and the promise they make to their clients will differ, so the details within each contract will be different.  Read on, for Company and Commercial Solicitor, Andrew Dongworth’s answers to the most frequently asked questions about business contracts.

Do I need a solicitor to write my business contracts?

You do not have to consult a solicitor, however without an understanding of contract law, you are exposing your business to increased risk and legal disputes.  An experienced company solicitor will learn about your business and your customers, and then prepare a tailored contract that considers all the essential elements to protect you and your customers.   For example, in addition to the basic principles of the contract, it should include the terms of payment, how to cancel the contract and what will happen if there is a breach of contract.  It should also consider any specific rules and regulations for your industry or type of business.  There will also be clauses to cover any licences or intellectual property requirement.

Should a contract include a terms and conditions document?

The law does not explicitly state that you must include terms and conditions as a separate document to your contract, however it is strongly recommended to do so if you are running a business.  Your terms and conditions form an important part of a contract and clearly outline the conditions of the agreement. If there was to be a dispute you will be in a much stronger position to prove your compliance if you have a signed terms and conditions document as a part of your agreement.

If you are providing services online you are legally required to provide an accurate description of your goods or services, prices, delivery arrangements, cancellation policy, returns policy, the terms and conditions of sale and a clear complaints procedure.

Can I terminate a contract early?

Without the presence of an ‘early termination clause’ in your contract, any attempt to no longer fulfil your side of the agreement will be a breach of contract.  Check your contract for details of what will happen in the event of a breach.  Usually, you will be liable to pay any financial losses or compensation for damages.

To terminate a contract you will need to comply with the steps set out in the termination clause.  This should include a notice period.

If your reasons for wishing to exit your contract early, are due to a grievance or if the other party has breached their part of the contract, you may be able to terminate it.  In these cases, please seek legal advice.

Can I get a free contract online?

You can, but it’s unlikely that it will consider all the necessary clauses for your specific business.  And because it has not been tailored for your business, it is unlikely to protect you, if there is a dispute.  If you do not have legal experience, you may not fully understand some of the legal jargon used and therefore how it will impact your business.  In some cases such contracts could make the outcome of a dispute worse for you instead of better.  We really don’t recommend relying on, or signing a contract that has not been prepared for your situation.  Our litigation team are often contacted to try to resolve disputes caused because of unsuitable contracts. This results in time and costs that could have been avoided if a professionally prepared contract been drawn up in the first instance.

Can a text message be a contract?  / Can an email be a contract?

Strictly speaking, if all the principles of a contract (offer, acceptance, consideration, intent, and capacity) are present in a text message or email it could be deemed a contract. The consequences for breaking it will be the same as it would if it were in any other form.  If you are negotiating with a client via text, WhatsApp or email it’s important to be aware of any promises you are making, that are in turn accepted by the client.  You may wish to clarify that any discussions are “subject to contract” which means that nothing is confirmed until a formal contract is signed.

A famous example of an unusual contract is when Colonel Parker wrote the terms of Elvis’s residency agreement at the International Hotel on a pink tablecloth in the coffee shop.  This stated he would receive $1 million per year for five years.  However, it is important to note, that in this case they did go on to produce and sign formal documents which became the official contracts for Elvis’s employment at the hotel.

Can I have a verbal contract?

Officially a verbal agreement is legally binding if the basic principles stated above are fulfilled.  However, in the event of a dispute it is difficult to prove the existence of a verbal contract, or its terms.

As with a text or email, the best approach is to ensure that during any verbal negotiations you make it clear that the discussions are ‘subject to contract’.  You can then follow up in writing and request a signed contract.  This will ensure you have everything written down and are protected in the event of a dispute.

In summary

A business contract is an important part of determining how you will fulfil your promise to your clients, customers, employees and suppliers.

Without a professionally prepared contract, you are exposed to risk and disputes.  Such outcomes can be damaging to your finances and the reputation of your company.

For more information and tailored legal advice on company and commercial matters

• Email info@hrjforemanlaws.co.uk
• Call Hitchin 01462 458711 or Welwyn Garden City, 01707 887700
• Complete our contact form here

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