Topic overview

Business contracts

Business contractsbusiness contract does not have to be in writing, but it is strongly advisable to have a clear, written agreement wherever possible. At a minimum, you should agree the main contract conditions in writing in a letter or email, to make your respective rights and responsibilities clear. Do this before any contract is entered into.

Standard commercial contract terms (often called 'terms of business' and 'terms and conditions' or 'T&Cs') are usually appropriate where you sell goods or services that are the same (or very similar) every time. For bespoke products or services that vary according to the job to be undertaken - such as some building services or software developments - you may need to negotiate a separate written 'trading' contract for each transaction.

Basic business contract terms and conditions

Terms of business and separately negotiated trading contracts should make it clear what each party to the business contract is agreeing to. Must-have clauses will include the price, payment terms (eg 30 days, lump sum or instalments), details of the goods or services being supplied, and how, when and where they are to be delivered.

Terms and conditions for the sale of goods commonly allow a seller to retain ownership of the goods until payment has been made. This helps protect the seller - for example, if the customer fails to pay or becomes insolvent.

There is a statutory right to claim interest on late payments, where both parties are businesses, but you can make specific provision for interest on late payment in your terms of business or other contract if you wish. You can't claim both, so if it's in the contract you can't claim the statutory interest as well.

Make your business contract fair and reasonable

If you want to try to limit your liability for damage or losses caused by your goods or services in your terms of business or trading contract, you need to be careful. In some circumstances the law prohibits this, while in others it only allows you to do so if your limitations of liability are 'reasonable'. For example, you cannot exclude or limit liability for death or personal injury at all if it is caused by your negligence.

Take care with any attempt to impose penalties if the other party breaches the business contract. You can provide for 'liquidated damages' (LDs), which is an agreed amount of money that will be paid in the event of a specific breach. LDs can’t be designed to punish a party in breach of a contract, so it must be in proportion to securing performance of the contract. For example, it might be linked to the actual loss that you would expect from the breach.

You need to take extra care drafting terms of business or trading contracts for business-to-consumer sales (where the buyer is buying for their personal use, rather than for business purposes), because the law gives consumers extra protection. For contracts with consumers, every term in your contract (other than the price and description) must be fair: for example, it is not fair if your terms of business allow you to keep a payment made in advance if the contract is then lawfully cancelled.

Reviewed by Ed Ross, barrister, Clerksroom