There is a lot of conjecture as to whether a written contract is required for all agreements or is a verbal agreement also legally binding?
The answer to that is that both verbal or written can be legally binding. However, do we recommend it?
And the answer is no.
Why written contracts are better than verbal
Although it may be a daunting task it is always better to have your contract in writing to ensure you minimise your risk for your business. Having a contract can:
- Reduce the risk of a misunderstanding or dispute between the client and you
- Manage the client’s expectation and provide a greater level of professionalism
It’s easy for contractors to skip this step however, this will expose your business to many risks that can eventually lead to disputes and loss of income and time. There have been cases where verbal contracts were difficult to enforce because it was not possible to prove the existence of the contract and its terms.
Verbal agreements may not be legally binding in some industries
In certain industries, you must have a written contract in place as it is required by law. A key example is the building & construction industry as it is heavily regulated.
They can be written up by a solicitor or yourself. It is quite easy to find templates online as well. It is important to seek advice from your industry association, lawyer or business adviser to ensure your contracts manage the risks of the business.
The best place to start is to speak to your relevant industry association. They can assist you in working out what are the key terms and conditions required in your contracts to ensure you minimise the risks related to your industry. If for whatever reason a written contract is not prepared, be sure to have some documentation that will help identify what was agreed upon. This can include emails, quotes, or even notes regarding the discussions with your clients.
Here is a summary of information that can be in your contract:
- Client information
- Your information
- Description & scope of service
- Price, quote & payment details
- Intellectual property
- Expense reimbursements
- Time length and key dates
- Exclusivity arrangement & restraints of trade
- Termination of contract
- Warranty and defects of work
- Use of equipment and tools
- Taxes & other obligations including superannuation, GST & payroll tax
- Confidential information
- Dispute resolution
While verbal agreements can be legally binding, it can leave a significant grey area that can be the cause of confusion, misinformation and disputes. Having written evidence in the form of a written contract can alleviate the majority of the misunderstandings while holding all parties liable to their responsibilities and rights. With the right legal counsel, having a well-written contract will ensure that you are not walking into a minefield of problems in the future. If in doubt, you can consult with Box Advisory Services as to the best course of action for your situation.
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.