Contracts sit at the heart of almost every business relationship. From clients and suppliers to consultants and partners, contracts define obligations, manage risk, and provide certainty. In England and Wales, contract law is largely based on common law principles, and misunderstanding these rules can leave businesses exposed to disputes and financial loss.
This article explains how contract law works in practice and why properly drafted agreements are essential for protecting your business.
What makes a contract legally binding
For a contract to be legally binding, four elements must be present. There must be an offer, acceptance, consideration, and an intention to create legal relations. These principles apply to most business contracts in England and Wales.
Contracts can be written, verbal, or implied by conduct. While verbal contracts can be enforceable, proving their terms is often difficult. Written contracts provide far greater certainty and protection.
Terms must be clear and certain. Courts will not enforce vague or ambiguous clauses. If essential terms such as price, scope of work, or duration are unclear, disputes are likely to arise.
Some contracts must be in writing, such as agreements involving land. Most commercial contracts do not, which leads many businesses to rely on informal arrangements that later cause problems.
Why contracts protect your business
Well drafted contracts allow businesses to manage expectations and control risk. They set out what each party must do, when payment is due, and what happens if something goes wrong.
Contracts can limit liability, protect intellectual property, impose confidentiality obligations, and provide termination rights. Without these protections, businesses may find themselves exposed to significant risk.
Contracts also support growth. Investors, lenders, and partners expect formal agreements. Informal arrangements can undermine credibility and create uncertainty.
Common business contracts include service agreements, supply contracts, consultancy agreements, shareholder agreements, and joint venture agreements.
Common problems businesses face
Many disputes arise not because businesses act in bad faith, but because contracts are poorly drafted or misunderstood.
Typical issues include contracts that do not reflect how the business actually operates, outdated terms, or reliance on generic templates that do not address specific risks.
Another common issue is variation. Verbal changes to contracts can create confusion and conflict. Without clear variation clauses, it can be difficult to determine which terms apply.
Businesses also often fail to enforce contracts consistently, weakening their position in disputes.
At Penerley, we help businesses draft, review, and enforce contracts that reflect commercial reality and reduce risk.
If your business relies on contracts, contact Penerley today to ensure your agreements protect you and support your long term success.
