If you have spent time and effort carefully crafting an agreement, then you should never mark them ‘subject to contract’. This phrase is only relevant when you are still discussing or negotiating your contract. It does not apply and should not be used in any other circumstances.
Using ‘Subject to Contract’
This phrase should only be used when you want to prevent a contract arising ie when you think not all the relevant terms are agreed. The phrase counteracts the implication that you intend to enter into a contract now. Even if you have an offer, accepted, for consideration and with certain terms (the other four elements for a contract), there can be no legally binding contract.
Between businesses (ie B2B), it is presumed that agreements should become contracts
But there are two different effects of using ‘subject to contract’: one is that any agreement marked ‘subject to contract’ does not have ‘legal effect until a formal contract…was signed’ (Jarvis). For this it needs to be clear that you and your contract partner wanted a formal contract to be signed, rather than an exchange of emails, handshake or phonecall.
This is not the same as believing there ought to be a formal contract: “the mere fact that the letter giving instructions to proceed envisages the execution of further documentation, does not preclude the court from concluding that a binding contract was nonetheless entered into, provided that all the necessary ingredients of a valid contract are present.” (Harvey)
For further explanation of the difference, see what does subject to contract mean?
What Should You Do?
For lawyers: do not use subject to contract if your clients would actually be better off with an oral or part oral-part written contract than no contract at all.
For businesses: use subject to contract if you only want to be bound by a formal contract; by making this very clear in all your correspondence and meetings. You also need to make sure the parties sit down and record the agreement, and then sign it.
For consumers: it is not normally necessary outside of the business context to use subject to contract. If you want to be bound, get a written agreement, which is evidence that you intended to create a legal contract.