Many business owners rely on trust, relationships, and handshake deals to get things done quickly. While this may feel efficient and informal, verbal agreements carry serious legal and financial risks. In England and Wales, verbal contracts can be legally binding, but proving what was agreed and enforcing those terms is often difficult and expensive.
Disputes arising from verbal agreements are one of the most common causes of commercial conflict. What one party believes was agreed may differ significantly from the other party’s understanding. Without written evidence, resolving these disagreements becomes complex and unpredictable.
This article explains why verbal agreements are risky, how the law treats them, and why written contracts are essential for protecting your business.
Are verbal agreements legally binding?
Under English law, a contract does not need to be in writing to be legally binding. A verbal agreement can form a valid contract if four key elements are present. There must be an offer, acceptance, consideration, and an intention to create legal relations.
In theory, this means that many business discussions can result in legally enforceable agreements. However, the main issue is not whether the agreement exists, but whether its terms can be proven.
In the absence of a written contract, courts rely on witness evidence, emails, text messages, and conduct between the parties. This often leads to conflicting accounts and uncertainty. Judges must decide which version is more credible, which creates risk for both sides.
Certain types of contracts must be in writing. For example, contracts for the sale of land and consumer credit agreements are subject to statutory requirements. Most commercial agreements, however, can be verbal and still legally valid.
The problem for businesses is that legal validity does not equal legal security.
The commercial risks of verbal agreements
Verbal agreements expose businesses to a wide range of risks that can have serious financial consequences.
The first risk is uncertainty. Without written terms, key issues such as price, scope of work, deadlines, payment terms, and liability are often unclear. This makes disputes almost inevitable.
The second risk is enforceability. Even if you are confident about what was agreed, proving it in court can be difficult. If the other party denies certain terms, the burden of proof is on you.
The third risk is cost. Disputes over verbal contracts often result in lengthy legal proceedings. The cost of litigation can quickly exceed the value of the original agreement.
The fourth risk is loss of business relationships. Misunderstandings over informal deals frequently lead to damaged professional relationships and reputational harm.
The fifth risk is regulatory exposure. Without written terms, businesses may fail to comply with legal obligations around data protection, confidentiality, intellectual property, or consumer rights.
Common problems caused by verbal agreements include:
• Disputes over payment and fees
• Disagreements about scope of services
• Arguments over deadlines and delivery
• Confusion about termination rights
• Lack of protection for confidential information
These issues are avoidable with proper documentation.
Why written contracts protect your business
Written contracts provide clarity, certainty, and legal protection. They set out the rights and obligations of each party in clear terms and reduce the risk of misunderstanding.
A properly drafted contract allows you to define key commercial terms such as price, payment schedule, service scope, delivery times, and remedies for breach. It also allows you to limit liability, protect intellectual property, and include dispute resolution mechanisms.
In England and Wales, courts strongly prefer written evidence. A signed contract is the most reliable way to prove what was agreed. It also allows disputes to be resolved more quickly and often without court action.
Written contracts also support business growth. Investors, lenders, and partners expect formal agreements. Relying on verbal deals can undermine credibility and create barriers to expansion.
Even simple agreements should be documented. This includes consultancy arrangements, supplier agreements, joint ventures, and service contracts. Emails and invoices provide some protection, but they are not a substitute for a properly drafted contract.
At Penerley, we regularly assist businesses that come to us after disputes have already arisen. In most cases, the problem could have been avoided with a written agreement.
Our role is to help businesses protect themselves through clear, legally sound documentation tailored to their commercial needs.
If your business relies on verbal agreements or informal arrangements, now is the time to review your practices. Contact Penerley today to discuss how we can help you put the right legal foundations in place and avoid costly disputes in the future.
