Table of Contents
In Short
- Implied terms arise automatically in contracts through laws like the Sale of Goods Act, industry customs, or court decisions to reflect mutual intent.
- These terms can impose unforeseen obligations, leading to disputes and financial risks if breached.
- Invest in professionally drafted contracts to clearly outline express terms and exclude or limit implied terms where legally permissible.
Tips for Small Businesses
Understand which implied terms may apply to your contracts and how to address them effectively. Use precise and comprehensive language to reflect your business intentions and minimise ambiguity. Include clauses to limit or exclude implied terms where allowed by law, reducing the risk of unexpected obligations.
When running a small business, contracts with clear written terms are key tools to help you manage your business relationships with clients, suppliers, and other partners. However, as well as the written terms you agree to such as express terms. Contracts can also include terms that arise automatically. Small businesses must understand how implied terms apply, the risks they can create, and the importance of precise contract drafting. This article explores key issues about implied terms in business-to-business (B2B) contracts and their potential practical impact on small businesses.
How Do Implied Terms Arise?
Implied terms often arise when the parties to a contract have not explicitly addressed certain matters in their agreement. They can occur in a range of scenarios.
In addition, terms may be implied based on trade or industry customs, reflecting well-established practices. The parties’ conduct can also lead to implied terms, particularly where a history of consistent behaviour suggests mutual expectations.
Courts may imply terms to give effect to the parties’ intentions when the contract was made. However, this is subject to strict conditions and is generally somewhat limited. As such, small businesses must understand these terms and their potential impact on their contracts.
Can Implied Terms Cause Risk for Small Businesses?
Implied terms can create legally binding obligations for a small business when they apply. This means that if your small business breaches them, the other contractual party could have various remedies against your company. Implied terms can create significant uncertainty for small businesses, which, if not carefully managed, could lead to costly disputes or time-consuming arguments.
In many cases, small businesses may be surprised by implied terms only when a disagreement arises, and the contract is subjected to detailed scrutiny by lawyers or the courts. Implied terms can result in obligations that a party neither expected nor intended, further complicating matters.
Uncertainty and legal arguments over implied terms can harm small businesses. Disputes can drain resources and distract business owners from their operations. Small businesses must, therefore, act proactively to avoid the risks surrounding these terms.
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How Can a Small Business Avoid Uncertainty Over Implied Terms?
Small businesses can avoid uncertainty over implied terms by seeking legal advice to understand how they may apply to their contracts. A lawyer can help your small business:
- assess the nature of your business;
- the industry you operate in; and
- the specific agreements you use to identify which implied terms might arise.
This proactive approach can help ensure you know of potential obligations arising from terms before they become an issue. Working with a commercial contracts lawyer can also ensure that your contracts are tailored to your business needs, comply with relevant laws, and reduce the risk of disputes.
Clear Wording
Small businesses should adopt comprehensive, legally sound, and clearly drafted written contracts. These contracts should set out express terms and, where appropriate, clear and reasonable exclusions of implied terms (which are legally permissible).
Where possible, unwanted implied terms should be excluded with clear clauses to reduce the risk of disputes arising. However, any exclusions must comply with legal rules, as certain terms cannot be excluded. Parties often seek to exclude these terms where possible to avoid risk, but it is vital to do so carefully so that any exclusions are legally permissible.
Investing in professionally drafted, watertight contracts can help your small business minimise risk. A well-drafted agreement will help you to clearly set out the terms of the relationship, leaving little room for ambiguity and potential arguments over implied terms. It can also include clauses that exclude or limit these terms where legally permissible.
Use this checklist to ensure your supplier contracts contain all necessary terms.
Key Takeaways
Implied terms can arise in various scenarios, which can take a small business by surprise. To avoid the possible risks of these terms, your business can seek legal advice to understand how these terms could impact your business contracts. Companies can invest in professionally drafted contracts that reflect your business needs. These steps can help your business minimise risk and prevent disputes over implied terms.
If you need help with contracts for your small business, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Contracts are the key framework of business relationships. They help you clarify the responsibilities of each party and protect your interests if something goes wrong. A clear and well-drafted contract can help you prevent disputes, reduce misunderstandings, and save your business money and time.
Implied terms create obligations that are not always obvious. If you do not understand these terms, you risk assuming unexpected responsibilities or breaching your obligations.
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