Zoe Watson, solicitor in Frettens Corporate & Commercial Team, breaks down the 5 most important things you need to consider when drafting or updating your business' terms and conditions.
Why are terms and conditions important?
A well drafted set of terms and conditions (“T&Cs”) is crucial for any business, in that it makes customers aware of the details of their legal relationship with the business they are engaging with and, in turn, reduces the scope for potential disputes arising in the future.
It is often the case that when a conflict arises, it comes to light that a business does not have any T&Cs, or at least its current version is not up to date, and this can lead to unnecessary, and costly, litigation. We would therefore always recommend that T&Cs stay at the forefront of any business owner’s mind.
What should be included in terms and conditions?
There are several points to consider when drafting or updating existing T&Cs –
1. Obligations of parties
A business should be clear in its T&Cs what it expects from its customers, and what the customers can expect in return. A key purpose of T&Cs is to establish the commercial terms being offered to customers and allows contracting parties to understand their rights and responsibilities.
Setting out responsibilities allows businesses to effectively manage its client’s expectations and avoid any ambiguity around what is expected of them.
2. Credit terms and non-payment
T&Cs should clearly outline the payment terms for the customer and what the ramifications are if any payments are missed. A poorly drafted payment clause may leave businesses unable to recover unpaid debts.
Businesses should also reserve the right to charge interest on any late payment. This could be at a rate chosen by the business, for example, a certain percentage above a bank base rate, or the business could charge interest in accordance with the Late Payment of Commercial Debts (Interest) Act 1998 (and subsequent 2002 Regulations), which currently sets the rate at 8% pa. Note that if a business has quoted a lower interest rate in its T&Cs, the lower rate will take precedence.
Businesses should also consider whether or not it would be relevant to include a retention of title clause in their T&Cs, you can read my colleague Lauren Smallwood's article on retention of title clauses here.
3. Cancellation and termination rights
It is important that businesses are clear on consumers’ cancellation rights so there can be no argument that the terms are unfair. For example, T&Cs need to be transparent on what rights the consumer has in order to cancel a distance contract i.e. online, over the phone or via email order. Equally, businesses should ensure that the T&Cs have a clear provision for when the contract can be terminated and in what circumstances.
It is useful to know that business customers are not afforded the same cancellation rights as that of a consumer and we can advise on the position for businesses.
4. Limiting liability
It is important to know where liability can be limited and where, by law, it cannot. For example, whether a business supplies to other businesses or consumers, it cannot exclude liability for death or personal injury caused by its negligence, or the negligence of its employees, agents or subcontractors, or for defective products under the Consumer Protection Act 1987.
Other limitations on liability that are not prohibited under the Consumer Rights Act 2015 are not automatically enforceable but will be subject to the ‘fairness test’ and the ‘transparency test’. A consumer needs to know what liability has been limited and to what extent, so having an ambiguous limitation of liability clause is highly likely to fail both tests.
It would be sensible for a business to liaise with its insurers to ensure that sufficient cover is in place in this regard.
Related: What is professional negligence and how do you prove it
5. Force majeure
Force majeure clauses are important in T&Cs as they can exclude liability in circumstances where a party performing its contractual obligations becomes commercially impracticable or impossible. This clause can be beneficial to both the business and the consumer as it can give either party the right to terminate the contract following a force majeure event.
My colleague Sarah recently wrote about Force Majeure clauses and COVID in an article you can read here.
Terms and conditions: A solicitor's view
Although many of us may admit to not reading the small print when buying goods or services, businesses should always make sure that its T&Cs are brought clearly to a customer’s attention prior to a contract being entered into.
The team at Frettens can advise on what type of T&Cs would best suit your business, and tailor these to ensure they provide the best possible legal protection for how you trade.
Read what makes a strong commercial contract here.
Corporate & Commercial Solicitors Bournemouth, Christchurch and Ringwood
If you have any questions following this article, please do not hesitate to get in touch with our bright and experienced corporate and commercial team.
At Frettens, we offer a free initial appointment for all new clients. This usually takes place over a coffee with one of our bright lawyers at our modern, conveniently located offices, but can also be over the phone or video call.
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