What Is an Implied Term in Contracts?

An implied term is a contractual provision that is not expressly written or stated by the parties but is nevertheless treated as part of the contract by law. In England and Wales, implied terms play an important role in ensuring contracts operate fairly, logically, and in line with commercial expectations.

Unlike express terms, which are clearly set out in writing or spoken agreement, implied terms are “read into” a contract by courts, statute, or established custom. They are often central in business disputes where a contract is incomplete, unclear, or silent on a key issue.

Meaning of an Implied Term

An implied term is a term that forms part of a contract even though it is not expressly included.

Courts will only imply a term where it is necessary to do so, not simply because it would be reasonable or fair. The focus is on what the parties must have intended at the time the contract was made, assessed objectively.

The UK Supreme Court has confirmed that implication of terms is a separate and stricter exercise than interpreting express wording, and it is only used to fill genuine contractual gaps.

Types of Implied Terms

Implied terms in English contract law fall into three main categories:

1. Terms implied in fact (specific contracts)

These terms are implied to reflect what the parties must have intended in a particular agreement. Courts apply two main tests:

• Business efficacy test: a term is implied if it is necessary to make the contract work in a practical and commercial sense
• Officious bystander test: a term is implied if it is so obvious that both parties would have agreed to it immediately if asked

These principles originate from cases such as The Moorcock and Shirlaw v Southern Foundries.

The modern approach was restated in Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd [2015] UKSC 72, where the Supreme Court confirmed that a term will only be implied if it is necessary for business efficacy or so obvious it goes without saying, and must not contradict express terms.

Key requirements include:

• necessity (not mere convenience)
• clear expression
• consistency with express terms

2. Terms implied in law (standardised relationships)

These terms are implied into all contracts of a particular type, regardless of the parties' intentions. They arise from legal policy rather than individual agreement.

Common examples include:

• employment contracts (e.g. mutual trust and confidence)
• landlord and tenant obligations
• certain consumer protections

These implied terms ensure minimum standards of fairness and functionality in recurring contractual relationships.

3. Terms implied by statute

Parliament frequently inserts implied terms into contracts through legislation, particularly in consumer and sale-of-goods contexts.

Examples include:

• goods must be of satisfactory quality
• goods must match their description
• services must be performed with reasonable care and skill

These are commonly found in legislation such as the Consumer Rights Act 2015 and Sale of Goods legislation.

Legal Test for Implied Terms in Fact

Courts apply a strict threshold. A term will not be implied simply because it seems reasonable or fair.

The key principles include:

• the term must be necessary for commercial coherence
• it must be obvious to both parties at the time of contracting
• it must be capable of clear wording
• it must not contradict express terms

In The Moorcock (1889) 14 PD 64, the court held that a term could be implied where it was necessary to give the contract practical effect.

Modern courts emphasise necessity rather than fairness, meaning many proposed implied terms fail because the contract still functions without them.

Implied Terms in Employment Contracts

Employment law is a major area where implied terms play a significant role. Courts regularly imply obligations such as:

• duty of mutual trust and confidence
• employer cooperation with performance of duties
• employee duty of fidelity and good faith

A well-known example is Malik v Bank of Credit and Commerce International SA (BCCI), which confirmed the existence of the implied term of mutual trust and confidence in employment relationships.

These implied terms are fundamental in employment disputes, particularly claims involving unfair dismissal, workplace grievances, and constructive dismissal.

Custom and Industry Practice

In some cases, terms may be implied based on consistent and notorious industry practice. For a term to be implied by custom, it must be:

• well established
• certain and uniform
• known within the relevant trade
• consistent with the express contract

Courts apply this cautiously to avoid overriding written agreements.

How Courts Approach Implied Terms in Disputes

In business disputes, courts follow a structured approach:

Step 1: Examine express terms

Courts first interpret the written contract. Implied terms cannot be used to rewrite clear wording.

Step 2: Identify gaps

The court considers whether the contract is incomplete or unworkable without an additional term.

Step 3: Apply necessity test

A term is only implied if the contract cannot operate properly without it.

Step 4: Ensure consistency

The implied term must not contradict any express provision.

This structured approach reflects modern case law emphasis on contractual certainty and restraint in implying terms.

Common Disputes Involving Implied Terms

Implied terms frequently arise in:

• business services agreements where obligations are unclear
• supply contracts lacking detailed performance standards
• employment disputes over fairness and conduct
• shareholder and partnership disagreements
• construction and commercial development contracts

Typical issues include whether a party was obliged to act in good faith, provide cooperation, or meet unspoken performance standards.

Risks and Limitations

Implied terms are not guaranteed and are difficult to establish. Key limitations include:

• courts will not imply terms just because they are fair
• professional or well-drafted contracts reduce the likelihood of implication
• implied terms cannot contradict express wording
• evidential burden is high in commercial contracts

This makes drafting clarity essential in business agreements.

Time Limits in Implied Term Claims

Claims involving breach of implied terms are treated as standard breach of contract claims. In England and Wales, the usual limitation period is:

• 6 years from the date of breach (simple contracts)

In deed-based contracts, the limitation period is typically longer (12 years).

Key Takeaways

An implied term is a contract provision that is not written but is treated as part of the agreement by law. It may arise from necessity in a specific contract, legal policy in certain types of relationships, or statute. Courts in England and Wales apply a strict necessity-based test and will not imply terms simply because they appear reasonable. Implied terms are particularly important in employment and commercial disputes, where contracts may not fully address all operational obligations.