In the food and hospitality industry, you will encounter a vast range of contracts on a daily basis. You need to understand what these contacts entail and how to draft relevant contracts and manage them when the need arises. This article will explain some key information about hospitality contracts, as well as how you can ensure that you always meet your contractual duties.
Essential Components of Any Contract
What is a Contract?
A contract is a legally binding agreement. This means that you and the other party have obligations that you are legally required to do. For example, if the contract states that you must pay a fortnightly rent of $1500, you must do so unless the contract says otherwise. Contracts are, therefore, extremely important, as they provide legal backing to agreements you make while running your hospitality business.
The Basic Ingredients of a Valid Contract
For a contract to validly exist, there are a few prerequisites that you need to meet. These elements are in the table below.
| Element | Explanation |
|---|---|
| Offer and acceptance | You must make an offer to the other party, which they then accept, or vice versa. The offer needs to be clear and precise, as does the acceptance. |
| Intention | The parties must have demonstrated an intention to be bound by the contract terms. Written statements, signatures, or payments can often show this. Whether or not there is sufficient evidence will also depend on factors such as the agreement’s content, the relationship between the parties and the context of the agreement. |
| Consideration | For a contract to exist, there must have been an exchange of value between the parties. For example, if a restaurant purchases produce from a supplier, the exchange of value is the payment for the produce. |
Contracts in the Food and Hospitality Industry
In the food and hospitality industry, you will encounter two primary forms of contract: written and implied. We explain these types in more detail below.
Written Contracts
Written contracts are usually more formal and used when you require a detailed understanding of the terms of the contract. Some relevant examples of written contracts in the industry are tabulated below.
| Example | Explanation |
|---|---|
| Employment contracts | When hiring your staff, you must provide them with employment contracts to sign. These contracts will typically include working hours, rate of pay, expected workplace behaviour and other employment law matters that you and the employee must agree on before they can start work at your business. |
| Leases | A lease is a contract that details the rules and conditions for renting and using someone else’s property. If you are starting a new restaurant or cafe, you will likely sign or have already signed a lease. If you need clarification on your lease or there is a dispute between you and your landlord, the lease agreement document will spell out the legally binding terms. |
| Contracts for the supply of goods | If you have a regular supplier of produce, meat, or coffee beans, you may have drawn up a contract that sets out your and your supplier’s rights and obligations. |
Implied Contracts
Implied contracts are less formal and are used for everyday agreements that do not require complicated or detailed terms.
You may first encounter an implied contract for agreements to buy or sell. When a customer enters your business and purchases something from you, you are both entering into an implied contract. For example, if a customer visits your cafe and orders, you have both entered into an implied contract. You are obliged to provide the customer with the food they ordered, and the customer is obliged to pay you the amount specified in your menu. Nothing in particular needs to be done or said for the contract to be created. In short, you merely need to offer the food for sale, and the customer needs to show they will buy it from you.
Similarly, agreements to supply goods can be implied. You may make unwritten agreements with suppliers where you do all the dealing and negotiating verbally. For simple transactions between you and your supplier, there is no need for complicated terms contained in a written agreement. However, if you have a dispute with your supplier, you will have nothing to refer back to regarding the agreement terms.
Continue reading this article below the formMeeting Contractual Duties
Failing to meet your contractual obligations can be costly and cause headaches for your business. However, you can take steps to ensure that you are in the best position to meet your obligations. These include:
- Keeping copies of your contracts: In a dispute between you and the other party, a copy of the contract will allow you to refer back to what you originally agreed on. For important agreements such as leases or employment contracts, you should always make sure you have a copy of the contract.
- Drafting written contracts where possible: It may not be feasible to give every customer a contract to sign before you serve them, but it can be helpful to use written contracts where possible with suppliers, contractors and in other situations where you may need to refer back to your contractual obligations.
- Only agreeing to terms you can fulfil: Once you have finalised a contract, you are legally obligated to do what that contract requires. If you do not think you can effectuate a contract term, do not agree to that term.
As an employer, understand your essential employment obligations with this free LegalVision factsheet.
Key Takeaways
As a food and hospitality business, you will develop and perform different forms of contracts regularly. Understanding what makes up a contract and what kinds of contracts you will encounter is essential. Importantly, for a contract to be binding, there must be an offer, acceptance, an intention to be legally bound and consideration to be paid by the parties. In general, you will use a written contract for formal, more complicated agreements and implied contracts for more everyday situations. Crucially, some ways you can meet your contractual duties are:
- keeping copies of your contracts;
- using written contracts where appropriate; and
- ensuring that you only agree to terms you can follow through on.
If you require assistance and guidance on contracts and your contractual obligations, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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