Can A Contract Have Non-Binding Terms in England?

As a business that is frequently entering into contracts, you must know if the agreements you enter into are binding. If not, you may have to perform contractual obligations that may leave your business worse off. A legally binding contract has a set number of requirements and can be struck out as void if it fails to meet these. Similarly, certain contract terms can be void and, therefore, non-binding. Being able to identify a non-binding term is important, as it can help you fix the problem from an early stage. Identifying non-binding terms can also help you avoid performing any unnecessary obligations to the other party. 

This article will explain the key elements that make a contract term legally binding. It will also give examples of when your contract might contain non-binding terms or a non-binding agreement.

What Makes a Binding Contract?

A binding contract is one that either party can enforce in court if the other fails to complete their obligations. Without a binding agreement, the contracting parties will not have formal legal relations or any legal effect on their agreement. As a result, if a party breaches a non-binding contract, they will not have a remedy through the court system. 

Legally binding agreements must contain several key elements as per English contract law. These include:

• offer and acceptance;
• valid consideration;
• an intention to create legal relations;
• legal capacity to enter into a contract; and
• legality.

Without these elements, an agreement will not be legally binding. Further, it is worth noting that most business transactions that involve a contract will presumably contain consideration. Consideration is an exchange of something of value. Without it, the entirety of the contract will be invalid. For example, consideration can involve financial compensation for certain goods or services. 

Finally, it is worth keeping in mind that a written contract is not necessary for an agreement to bind both parties. Although a detailed contract is more likely to be made in writing, you can still be a party to a legally binding oral agreement. 

What are Contract Terms?

Contract terms are the substance of your contract. In other words, they are the specific provisions you have agreed on with the other party. Once the entirety of the contract becomes legally binding, it is usually the case that the specific terms are also binding. 

However, you can have instances where some contracts are not binding on the parties, such as when:

• the terms are not sufficiently clear;
• the terms are illegal; or
• the terms are unfair; 

Unclear Terms

If an agreed term of a contract is too unclear to be enforceable, then a court may not consider it binding.

For example, if you have a contract for the sale of a good, it may not bind both parties if:

• the subject matter of the sale; 
• the price; or 
• the date of sale is wholly unclear.  

As a result, you must be clear about the details of your agreement, especially in a written contract. 

Illegal Terms

A contract term can be void if it is illegal in some way. There are different types of illegality, which can have different legal consequences depending on the context. For example, a contract term may be void for illegality if it involves:

• concealing a crime;
• bribery;
• fraud; 
• an intention to commit a tort;
• unlawfully using land;
• restricting the free movement of employees; or
• anti-competitive practice;

The illegality could happen at any stage, such as when you initially form the contract or during the performance of obligations. Similarly, if the purpose of the contract is to achieve something illegal, then the entirety of the contract will be void. 

Unfair Terms

Finally, a contract term can be non-binding if it is unfair to one of the parties. The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 both outline the rules around unfair terms. That is, contract terms cannot cause a significant imbalance in the rights and duties of the parties to the contract. 

For example, a term that allows one party to change the price of the goods after the agreement has been made might be unfair and, therefore, not legally binding. 

Finally, it is worth remembering that if a term is unfair, it does not necessarily mean that the entirety of the contract will always be void. 

Key Takeaways

As a business entering into commercial contracts, it is important to understand how to enter into a binding agreement. A binding agreement has many key elements, including offer and acceptance, consideration, and legal intention. However, some contracts may contain non-binding terms. This could be the case if the terms are unclear, illegal, or unfair. If a contract term is non-binding, then a court will not be able to enforce it.

If you need help with terms in your contractual agreements, 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 on 0808 196 8584 or visit our membership page.

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