Implied terms

Frequently lawyers refer to the implied terms of an agreement. This may be confusing for their clients who may think that if an agreement is written, you cannot then attribute to the parties an agreement they plainly never made. However the written agreement may not in law be exhaustive and terms may be implied into it in particular in two principal contexts.

First an Act of Parliament may imply a term. A good example is the Landlord and Tenant Act 1985, which implies a term of fitness for human habitation into a house tenancy (Sections 8 to 10) and also implies in dwelling house leases of less than seven years various landlords' repairing covenants (Section 11). These implied terms arise because of Parliament's perception of what is in the public interest.

The second main context where an implied term can arise is where a court, having heard argument, decides to imply a term. The need for this may arise because what the parties have written simply does not make sense or because the agreement is otherwise incomplete. Implied terms in this context arise not as a matter of public policy but because of the court's understanding of the private interests of the parties.

It is the second context, which is of particular interest because of the difficulty of forecasting whether or not the court will find an implied term to exist. In this connection the court starts from a point of unwillingness to imply a term and this is especially so the more detailed and entire the relevant agreement appears. In order to overcome this unwillingness and to conclude that a term should be implied the court has to be satisfied of five things:

The term is reasonable and equitable. An agreement between a rating authority and an oil company for the company to build a refinery in return for enjoying low rates was not subject to an implied term terminating the agreement if the company ceased occupation, thereby itself ceasing to enjoy the favourable rating liability, because the court viewed such a term as unreasonable and inequitable.
The term is necessary to give business efficacy to the agreement. If the agreement is effective without the term then it will not be implied. The business efficacy test was applied in a case where a publican contracted to take all his electricity requirements from an electric company and the court found that business efficacy could only be given to the agreement by implying a term that he would not take electricity from anybody else.
The term is so obvious it goes without saying. Confusingly it is not clear whether this is a reformulation of the business efficacy test or a different test altogether and therefore an additional requirement an implied term must satisfy. An example of this test is a case where farmers arranged with a vet to inoculate their cattle and it went without saying that the vaccine had to be safe and there was an implied term to that effect.
The term is capable of clear expression. Where the buyer tried to argue for an implied term in a petrol supply agreement that the supplier would not abnormally discriminate against him the argument was rejected by the court because of the vagueness and ambiguity of the words, "discriminate" and "abnormality".
The term must not contradict an existing express term. Express terms must always have primacy so that where a building contract stipulated for a particular building method, which turned out to be defective, it was impossible to imply a term that the building be fit for human habitation.

You only have to state these five requirements to realise that any given case can be fraught with argument and that it is difficult to predict its outcome. For this reason draftsmen sometimes try to exclude the risk of implied terms altogether by providing that the written agreement constitutes the entire agreement between the parties.

Finally terms can be implied into any type of agreement - contracts, leases and tenancies, conveyances, and deeds of transfer.

Subscribe to this update

The content of this update is provided for the purposes of general interest and information. It contains only brief summaries of aspects of the subject matter and does not provide a comprehensive statement of the law. It does not constitute legal advice and does not provide a substitute for it.