In business, agreements are made every day. Sometimes they are carefully drafted documents signed by both parties. At other times, they happen much more informally, perhaps during a phone call, over email, or even with a handshake on a golf course or over lunch.
This raises an important question for many business owners: does a contract need to be written down to be legally binding?
The short answer is ‘not always’. In many cases, a verbal agreement can still be a valid contract. However, relying on one can bring risks that businesses should understand.
What makes something a contract?
At its core, a contract is simply an agreement between two or more parties that creates legal obligations.
Typically, a contract includes a few key elements:
- Agreement – both sides clearly agree on what will happen
- Consideration – something of value is exchanged, often money
- Obligations – each party understands what they must do (or avoid doing)
These terms are often set out in writing because it provides clarity and certainty. Written contracts may also include additional provisions or legal consequences such as penalties, damages, or procedures if something goes wrong. It’s rare for these additions to be included in an informal verbal discussion.
However, the presence of a written document is not what makes an agreement legally binding.
Can contracts be verbal?
Yes. In many situations, verbal agreements are legally enforceable.
Businesses regularly rely on informal arrangements in day-to-day operations. For example:
- A retailer phones a usual supplier to place an order for goods
- A customer asks a contractor to carry out additional work during a visit
- Two businesses agree to adjust quantities or delivery times over the phone
These conversations can form part of a binding agreement, even if nothing new is signed. Courts recognise that commercial relationships often evolve quickly, and not every adjustment can realistically be documented in advance.
Where problems can arise
Although verbal contracts can be legally valid, they come with a clear challenge: proving exactly what was agreed.
If both sides later disagree about the details, it can become difficult to establish what was said. Unlike written agreements, there is no document clearly setting out the terms.
In those cases, courts may rely on:
- Witness testimony
- Emails or messages referencing the agreement
- Previous invoices or payments made that show a precedent had been set
- Other evidence showing how the parties behaved
While this evidence can help, disputes based on verbal agreements are often harder to resolve.
A common example: commercial property agreements
Lawyers frequently see disputes involving verbal understandings about commercial premises.
Imagine a small business owner looking for a larger workspace. They meet a landlord, discuss rent and lease length, shake hands on the arrangement, and pay a deposit while waiting for the formal lease document.
When the lease arrives, it may contain additional obligations that were never discussed, such as responsibility for repairs, insurance, waste collection, or local rates.
In situations like this, the unsigned lease becomes important. Until it is formally agreed, the tenant may still have the option to withdraw, though recovering deposits or rent already paid can be difficult.
The lesson here is simple: avoid committing money or making assumptions before reviewing the formal terms.
When a written contract is required
There are certain situations where the law requires contracts to be in writing.
Under the Requirements of Writing (Scotland) Act 1995, agreements involving heritable property, such as land, houses, or commercial buildings, generally must be documented formally. For example, property purchases require written legal documents prepared by solicitors. A verbal agreement alone would not be sufficient.
Modern communication and contracts
Today, contracts are rarely limited to paper documents.
Emails, text messages, messaging apps, and even social media conversations can provide evidence of an agreement. In some cases, they may even form the contract itself.
Scottish law also recognises electronic signatures and digital documentation, making it easier for businesses in different locations to formalise agreements without meeting in person. While these tools offer flexibility, they also mean that informal communications can sometimes carry more legal weight than people realise.
Why written contracts are still best practice
Although verbal agreements may be enforceable, written contracts remain the safest option for most businesses.
Putting terms in writing helps to:
- Clarify expectations for both sides
- Reduce misunderstandings
- Provide clear evidence if disputes arise
- Set out procedures if circumstances change
This is why many businesses use standard terms of business, purchase orders, or written service agreements as part of their routine operations.
Practical advice for small businesses
Before entering any agreement, it is worth taking a moment to consider the potential risks.
A few practical steps can make a significant difference:
- Confirm important agreements in writing, even if initially discussed verbally
- Keep records of emails, messages, and order confirmations
- Review documents carefully before paying deposits or signing
- Seek legal advice if terms are unclear or complex
Final thoughts
Verbal agreements are a common part of business life, and in many cases they can be legally binding. However, they are rarely the safest way to manage commercial relationships.
Where possible, clarity and documentation are your best protection. Taking time to understand the terms of any agreement and recording them properly can prevent costly misunderstandings later.
When in doubt, it is always worth pausing to review the details or seeking professional advice before committing.
John Roberts is a Partner and Director at Austin Lafferty Solicitors. John has been with the firm for almost 20 years, with experience in all areas of business law.
