Enforceable Agreements: A Guide to Australian Contract Law for NFPs

Introduction

For not-for-profit (NFP) organisations, understanding when an agreement is legally enforceable under Australian contract law is essential to protecting resources and ensuring smooth operations. Relying on undocumented or informal arrangements can expose your organisation to significant risks, including difficulties proving the existence or terms of a contract, and challenges in the event of a breach.

Properly documenting agreements and contract terms helps clarify the rights and obligations of each party, making enforceability more straightforward and reducing the likelihood of costly disputes. 

What Makes an Agreement Enforceable Under Australian Contract Law

The Core Elements of a Binding Contract

For any agreement to be considered a legally enforceable contract under Australian law, it must contain several essential components. These elements are necessary whether the agreement is in writing or made verbally.

A legally valid contract will be formed provided the following requirements are met:

• Offer and Acceptance: One party must make a clear offer, and the other party must accept that offer without ambiguity. This forms the basis of the mutual agreement.
• Consideration: Each party must provide something of value to the other. This does not always have to be money; it can be a promise to perform a service or provide goods.
• Intention to Create Legal Relations: The parties must have intended for their agreement to be legally binding. Without this intention, the arrangement may be considered a social or domestic promise rather than an enforceable contract.
• Certainty of Terms: The key terms of the agreement, such as the subject matter, price, and timing, must be clear and complete. Vague or incomplete terms can make a contract unenforceable.
• Capacity: All parties entering into the contract must have the legal capacity to do so. This means they are not, for example, minors or individuals lacking mental capacity.
• Legality: The purpose of the agreement must be lawful and not contrary to public policy. A contract for an illegal act is not enforceable.

The absence of any of these core requirements can render an agreement invalid.

The Presumption of Intention in Commercial Arrangements

A critical element in contract law is the “intention to create legal relations.” In the context of commercial dealings, Australian courts apply a strong presumption that the parties intended their agreement to be legally binding.

This principle is particularly relevant for NFP organisations, as most of their operational activities, such as funding or service agreements, are considered commercial in nature.

This presumption means that:

• Even informal discussions or arrangements can be deemed an enforceable contract if the other core elements are present.
• It distinguishes business dealings from casual promises made in a social setting.

Therefore, organisations should not assume that an unwritten or informal understanding is without legal consequence, as the law will likely presume it was intended to be a serious, binding agreement.

The Risks of Unwritten & Oral Agreements for NFPs

Proving the Existence & Terms of an Oral Agreement

While it is not a legal requirement for every contract to be in a formal written document, relying on verbal agreements creates significant risks. The primary challenge with an oral agreement is proving its existence and its precise terms if a dispute arises.

Without a written record, parties may have different recollections of what was promised, leading to misunderstandings and conflict.

To establish the terms of an unwritten contract, it may be necessary to piece together evidence from various sources, such as:

• Emails and text messages
• The conduct of the parties

This process can be complex and uncertain. Consequently, you may need the assistance of a lawyer to prove the existence of an oral contract, adding cost and time to the resolution of any disagreement.

When Verbal Promises Can Create Legal Obligations Through Estoppel

In some situations, a verbal promise can become legally binding even if it doesn’t meet all the formal requirements of a contract. This can occur through the legal principle of estoppel, which prevents a party from unfairly going back on a promise if another party has reasonably relied on it to their detriment.

If your NFP incurs significant expenses based on a promise, a court may enforce that promise to prevent an unjust outcome.

A clear illustration of this is the case of Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17. In this case:

• A company spent almost $3.7 million constructing an aircraft hangar in reliance on the council’s promise to grant a long-term lease.
• When the council breached the agreement, the court awarded the company reliance damages to compensate for this wasted expenditure.

This highlights the serious financial consequences of breaking a promise that another party has acted upon.

The Danger of ‘Agreements to Agree’ & Incomplete Terms

For any agreement to be an enforceable contract, its essential terms must be sufficiently certain and complete. A common pitfall for organisations is creating an “agreement to agree,” where crucial details such as price, deliverables, or timelines are left to be decided at a later date.

Australian courts generally find these arrangements to be unenforceable because the core components of the bargain have not been finalised.

The case of Masters v Cameron [1954] 91 CLR 353 demonstrates this risk. The parties signed a document stating their agreement was “subject to the preparation of a formal contract of sale,” which the court determined was not a binding contract.

This shows that if key terms are uncertain or the agreement is clearly preliminary, it may not create any legally enforceable obligations, leaving your organisation unprotected if the other party decides not to proceed.

Common Scenarios Leading to Enforceability Disputes for Charities

Funding & Sponsorship Agreement Disputes

Funding and sponsorship agreements are essential for many NFPs, yet they can quickly become contentious if not clearly documented.

Ambiguities in these arrangements, which often require legal advice on NFP funding agreements, can jeopardise a charity’s projects, its funding streams, and its relationships with crucial supporters.

Without a clear written contract, disagreements often arise over each party’s specific obligations.

Several key areas can lead to disagreements when they are not properly defined in an enforceable agreement. These potential issues include:

• Termination and Suspension: A funder may attempt to terminate or suspend the contract, or even change its terms, without your organisation’s consent.
• Record-Keeping and Audits: The agreement may impose detailed record-keeping, audit, and insurance requirements that your organisation is not equipped to meet.
• Intellectual Property: Your organisation might be required to grant intellectual property rights to the funder, which could have long-term implications.

Property Use & Co-location Arrangement Problems

It is common for NFP organisations to share premises, but these co-location arrangements are risky without a formal written agreement.

A recent case, The Returned & Services League of Australia WA Branch Incorporated v Vietnam Veterans and Veterans Motorcycle Club WA Chapter (Inc) [No 2] [2025] WASC 148 highlights the potential dangers of no formal agreement. In this situation, a motorcycle club for veterans (VMC) constructed and occupied a clubhouse on RSLWA’s land for 27 years under an informal arrangement.

When RSLWA decided to revoke the arrangement and take possession of the property, a dispute arose.

Because no formal lease or licence could be found, the court determined that VMC was merely a tenant at will. This meant RSLWA could terminate the tenancy without notice, leaving VMC without access to the clubhouse it had built.

This case serves as a critical reminder that all property use agreements, a key area of NFP and charity property law, should be documented in writing and stored safely to avoid eviction and loss of assets.

The Role of a Not-for-Profit Lawyer in Your Agreements

Gaining Clarity on Your Contractual Rights & Obligations

Engaging a NFP lawyer before entering into an agreement can provide essential clarity and protection for your organisation.

During the review process, your legal adviser can:

• Examine each clause to confirm it is comprehensive and unambiguous.
• Explain how the terms affect your rights and obligations in practice.
• Highlight any potential risks that could expose the organisation to liability.
• Recommend amendments so the contract clearly aligns with your objectives.

This guidance is crucial for identifying potential risks and liabilities often hidden in complex clauses. By seeking advice early, your organisation can make informed decisions and prevent future disputes, ensuring the contract protects your interests.

Assisting with Proving an Unwritten Agreement

While verbal agreements can be legally binding under Australian contract law, proving their existence and specific terms can be a significant challenge. If a dispute arises over an unwritten agreement, the lack of clear documentation often leads to conflicting recollections between the parties.

In these situations, the assistance of a lawyer is often necessary to establish enforceability. To substantiate the existence of an oral contract, your lawyer may gather evidence such as:

• Email correspondence that recounts the agreed-upon terms.
• Records of the parties’ conduct demonstrating acceptance of those terms.
• Any contemporaneous notes or invoices referencing the agreement.

By collecting and presenting this material, the lawyer can build a case and demonstrate that a legally enforceable agreement was formed.

Conclusion

For NFP organisations, understanding the core elements of an enforceable contract under Australian contract law is vital for avoiding disputes. Properly documenting all agreements, from funding arrangements to property use, protects your organisation from the significant risks and uncertainties of unwritten promises.

To ensure your organisation’s agreements are clear and enforceable, it is essential to seek specialised legal advice. Contact the experienced not-for-profit lawyers at LawBridge today to protect your interests and allow your organisation to operate with confidence.

Frequently Asked Questions