Scotland’s new Contract Act 2026: Key changes and action points for businesses

The Contract (Formation and Remedies) (Scotland) Act 2026 received Royal Assent on 14 April 2026 and is designed to bring clearer, more modern rules on contract formation and remedies into statute. Although the main provisions are not yet in force, if your business contracts in Scotland, this is a valuable opportunity to review your templates, approval processes, and day-to-day contracting communications before commencement dates are set.

In practical terms, the Act is designed to make it easier to pinpoint when a binding contract has been formed, which communications are legally effective and which remedies are available if performance slips. It follows Scottish Law Commission recommendations published in 2018 and aims to reflect modern commercial practice. For businesses, this will provide greater certainty but only if teams understand where the new default rules apply (and where you may want to contract out).

Key principles of the Act

There are two key general principles that form the basis of the Act.

First, contract law has largely developed through common law rather than statute. The Act aims to improve clarity and accessibility by restating and clarifying aspects of the common law in legislation.

Secondly, the Act reflects the importance of party autonomy (freedom of contract). Most provisions are therefore drafted as default rules, allowing parties to opt out and make alternative arrangements if they wish.

1. A clearer approach to contract formation

A key feature of the Act is a new statutory explanation of how contracts are formed. A contract exists where parties reach an agreement intended to have legal effect and which is clear enough to be enforced.

Importantly, a contract can still exist even if some details are left open. This reflects commercial practice, where parties often agree on key terms and leave smaller points to be settled later.

2. Offer and acceptance

A clearer framework will apply to offer and acceptance. An offer is made where a reasonable person would understand that one party intends to be legally bound if the proposal is accepted. Acceptance may be communicated by words or by conduct.

Under these provisions, silence does not amount to acceptance, and changing the terms of an offer creates a counter-offer rather than an agreement. While these rules are familiar, putting them into legislation makes them clearer and easier to apply.

3. Contracts formed by conduct

In practice, contracts can be formed through conduct alone. The Act seeks to codify this practice into statute. Under the proposed rules, a contract may be formed when performance begins, if the parties’ behaviour shows agreement. This helps avoid disputes based on technical arguments where the reality is that both sides acted as if a contract existed.

4. Modern communication rules

Scottish contract law has become increasingly in need of modernisation, particularly with how contractual communications are treated. The Act updates this, stating that communication takes effect when it reaches the recipient, meaning when it becomes accessible without undue delay, including by email.

A key change is the removal of the postal rule, which previously allowed acceptance and formation of a contract to take effect when a letter was put in the post, rather than when it was received by the recipient. Its removal reflects modern communication and avoids uncertainty.

5. A more structured approach to remedies

The Act introduces a clearer approach to remedies for breach of contract. It explains how the principle of mutuality works, meaning that parties’ obligations are linked.

It confirms that a party can still seek remedies even if both sides are in breach, as long as the breach relied on happened before the contract was ended. However, a party cannot insist on performance of obligations due after the contract has been brought to an end. This provides a more straightforward way to deal with situations where both parties have failed to perform properly.

6. Restitution after termination

Clear rules are also set out on what happens when a contract is ended because of breach. In general, benefits received must be returned, or their value accounted for.

The rules also cover how to value those benefits and what happens if they cannot be returned. This replaces a previously complex area with a more predictable system, while still allowing parties to agree different terms if they wish.

7. Retention of performance

Retention is clarified, including the right to withhold performance where the other party is in breach or expected to breach.

It confirms that this is allowed but adds an important limit: withholding performance must not be clearly disproportionate. This reflects current practice while giving clearer guidance on its use.

Looking ahead

Overall, the Act does not fundamentally change Scots contract law but makes it clearer and more suited to modern business. Codification of this area of law should mean greater certainty and understanding of what constitutes a contract.

However, there are several areas of the Act that create uncertainty. In terms of offers and acceptances which are sent electronically, the wording is unclear how this applies when it comes to out of office replies and IT issues where server delays are experienced. Does this mean that the notification is received by the individuals when it reaches their inbox or when they view the message?

There is also concern that a contract can be formed even if there is no intention to do so. This could mean that a number of actions, or messages, received via Teams or email could form a binding contract. This may result in confusion for businesses as to what can be construed as legally binding.

Businesses will need to take extra precautions and ensure communications are clear. They may wish to include provisions in their Terms and Conditions which address these situations to avoid ambiguity arising.

For legal advisers, the Act provides a clearer framework in a number of areas, however, it should not be treated as a complete revamp of the law. As it becomes law, it’s a good time for businesses to review their contracts and consider whether any changes are needed in light of the newly implemented rules.

How we can help

If you have concerns about any of the above, please contact Katrina Lumsdaine, or your regular Anderson Strathern contact for advice tailored to your situation.