When you sign a contract, not everything that governs the relationship is written down. Some obligations and rights exist automatically, whether or not the parties ever discussed them. These are known as implied terms, and understanding them is essential for any business owner or manager dealing with contracts.
This article explains what implied terms are, how they arise, and what they mean in practice, with real examples covering commercial and employment contracts.
Contact Ignition Law if you need clear, practical advice on any aspect of your contracts or commercial arrangements.
What are implied terms?
An implied term is a provision that forms part of a contract even though it has not been expressly written into the agreement. Unlike express terms, which are negotiated and recorded in the contract document itself, implied terms are read into the contract by law, by the courts, or by established custom.
This matters because businesses often assume that what is not written cannot be enforced. In practice, implied terms can create significant obligations and expose parties to liability they did not anticipate.
Express terms vs implied terms
Express terms are the provisions both parties have explicitly agreed to: the price, the delivery date, the scope of work. Implied terms fill the gaps. They apply where the parties have not addressed a particular issue, or where statute requires certain minimum standards regardless of what the contract says.
It is worth noting that implied terms generally cannot be excluded by a contract where statute provides them. Attempting to contract out of implied statutory terms in circumstances where they cannot be excluded will not protect you.
How are terms implied into a contract?
There are three main ways in which a term can be implied into a contract.
Terms implied by statute
Parliament has introduced a range of implied terms across different areas of law. Some of the most commercially significant include:
- The Supply of Goods and Services Act 1982 (SGSA), which implies that services will be carried out with reasonable care and skill, within a reasonable time, and for a reasonable charge where no price has been agreed
- The Sale of Goods Act 1979 (SGA), which implies that goods sold in a business context will be of satisfactory quality, fit for their intended purpose, and match any description given
- The Employment Rights Act 1996 (ERA), which implies a range of minimum protections into employment relationships, including provisions around notice periods and unlawful deduction from wages
These statutory implied terms form the baseline for many commercial and employment relationships in the UK.
Terms implied by the courts
Courts can also imply terms into a contract where the circumstances justify it. Two well-established tests are applied.
The first is the “business efficacy” test: a term will be implied if it is necessary to make the contract work commercially. If the contract would be unworkable or make no commercial sense without it, the court may read the term in.
The second is the “officious bystander” test: if you asked a reasonable person present at the time the contract was made whether a particular term was part of the deal, and they would say “obviously, yes”, it may be implied. The bar is deliberate: it is not enough that a term would be reasonable or convenient. It must be so obvious that the parties would have included it without hesitation.
Terms implied by custom or trade usage
In some industries, there are well-established customs or practices that are so widely accepted that they are read into contracts as a matter of course. For a term to be implied on this basis, the custom must be certain, well-known in the relevant trade, and reasonable.
What are some implied terms of a contract examples?
Implied terms of an employment contract
Employment contracts are a common area where implied terms have practical day-to-day relevance. Even a well-drafted written contract will be supplemented by implied obligations on both sides. Examples include:
- Mutual trust and confidence: Both employer and employee are under an implied duty not to act in a way that seriously damages the working relationship. Breaching this implied term can give rise to a constructive dismissal claim.
- Duty of fidelity: Employees are impliedly required to act in their employer’s interests and not to work against the business while employed.
- Reasonable notice: Where no notice period is specified, a reasonable period of notice is implied by law.
- Duty to pay wages: An employer is impliedly required to pay agreed wages for work performed.
For businesses, these implied employment terms mean that contractual gaps can still carry legal consequences. A poorly drafted employment contract does not simply leave a blank, it leaves room for implied obligations that may not reflect what was intended.
Implied terms in commercial contracts
In commercial contracts, implied terms most commonly arise around the standard of performance and the quality of goods or services. For example:
- A contractor engaged to carry out construction work is impliedly required to complete the work with reasonable care and skill, even if the contract does not spell this out
- A supplier of goods to another business impliedly warrants that those goods are of satisfactory quality and fit for purpose under the Sale of Goods Act 1979
- Where a contract is silent on timing, the obligation to perform within a reasonable time may be implied
These implied terms of a contract can create enforceable rights even where the written agreement appears incomplete.
Why implied terms matter for your business
Implied terms are not a legal technicality that only affects complex disputes. For any business that buys or sells goods or services, employs people, or relies on supplier relationships, they are part of the everyday contractual landscape.
Relying on poorly drafted or incomplete contracts leaves your business exposed to obligations you may not have intended and rights you may not know you have. Well-drafted contracts, prepared with legal input, set out express terms clearly while ensuring they sit comfortably alongside the implied terms the law will read in.
At Ignition Law, our commercial law solicitors help businesses draft, review and negotiate contracts that reflect their commercial intentions and manage risk effectively. As a B Corp law firm, we are committed to delivering practical, transparent legal support that helps your business grow with confidence.
Frequently asked questions
Can implied terms override express terms?
Generally, no. Express terms take precedence over implied terms. However, implied statutory terms can sometimes override express terms if statute provides that they cannot be excluded. For example, certain implied terms in consumer contracts cannot be excluded by agreement.
Can you exclude implied terms from a contract?
Some implied terms can be excluded or modified by agreement. Others, particularly those implied by statute to protect employees or consumers, cannot. Whether a particular implied term can be excluded depends on the type of term and the context of the contract.
What is the difference between an implied contract and an implied term?
An implied contract is an entire contractual relationship inferred from the conduct of the parties, where no formal agreement has been signed. An implied term, by contrast, is a specific provision read into an existing contract. The two concepts are related but distinct.
Do implied terms apply to verbal contracts?
Yes. Implied terms apply to all contracts, including verbal ones. The absence of a written agreement does not remove the operation of implied statutory terms or those the courts would read in.
Speak to Ignition Law
Whether you are reviewing an existing contract, drafting a new one, or dealing with a dispute about what was agreed, understanding implied terms is an important part of managing your legal position.
Contact Ignition Law to speak with a member of our commercial law team. We provide clear, commercially focused legal advice tailored to the needs of UK businesses.
