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Terms of Business Advice

What are Business Terms and Conditions?

Business terms and conditions (often referred to as “terms of business” or simply “T&CS”) is effectively the contract under which a business agrees to sell goods or services to its customers. They are important agreements to regulate your contractual relationships with your customers and suppliers, and will set out the rights and obligations of the parties under the contract.

T&Cs help a business manage a range of risks when selling goods, services, or a combination of goods and services – including those which sell via web sites, mobile apps or supply their services under an end user licence agreement granted to their customers. These might range from managing your customer expectations from the outset, to ultimately limit your liability under the agreement.

Well-drafted business terms should reduce the chance of a dispute with your customers, as they will evidence a clear agreement between you to buy and sell goods and services on the terms set out in the agreement. However if a dispute arises, having proper contracts and agreements in place will generally put you in a better place in the event you find yourself in legal action.

What type of business needs a set of Business Terms and Conditions?

Every business (including a small business) would benefit from a bespoke set of T&Cs in order to protect their position with their customers.  T&Cs are a key tool to enable a business of any size and nature to reduce their risk.

T&Cs are particularly important for an online business and those selling to individual consumers, as those businesses are subject to additional consumer protection law requirements (see below).  They are also extremely important for sole traders who ultimately may have personal liability if things go wrong. For a business owner who trades as a sole trader (rather an as a company) it is therefore extremely important to ensure they have a legally binding limitation of liability.

In the event of a dispute with a customer, a business will be in a far stronger position if they have a clear contract and T&Cs setting out the agreed terms, rather than relying on a verbal contract – the terms of which are likely to be disputed between the parties as their recollections vary.

Businesses should incorporate their terms into its system and processes to ensure that the terms are brought to the attention of the customer before they conclude their order. Under contract law, business terms and conditions which are not brought to a customer’s attention before they place their order are unlikely to be considered legally binding. Your standard terms can be made available on your website, however you must ensure that customers are clearly directed to them. Most websites selling goods and services online will ensure that the standard terms are brought up at check-out before the customer places their order. This is best practice – if your customers tick a box to confirm they have read and accept the business terms and conditions, it will be easier for the business to prove that the customer gave their explicit consent to them.

Should Business Terms and Conditions be drafted by a lawyer?

There is no obligation on businesses to use a lawyer to draft its terms – some businesses write their own terms. However, in our experience, DIY terms rarely offer appropriate protection for businesses.

We often see a start-up or small business has simply downloaded a template from the internet, or copy terms from a competitor. However, terms written in this way are unlikely to cover all facets of a particular business, and are therefore unlikely to be helpful in the event of legal action. Often copying other contracts from competitors (particularly those in other countries) results in the terms not including everything they are legally required to include, resulting in them not being legally binding on the other party.

Terms should ideally be professionally drafted – a modest investment up front can save a business time, money and resources later down the line – even for a small business.

What should Business Terms and Conditions cover?

The content of T&Cs will largely differ depending on the business relationship – in particular whether the business is contracting with a consumer or a business.

Consumer legislation provides consumers with several rights which businesses cannot contract out of (often referred to as “statutory rights”).  However, businesses generally have more freedom constructing its terms when selling to other businesses. For those businesses which sell to both individuals and other businesses, it is common to have separate terms for each customer base.

However the following provisions relating to the supply of your goods or services are found in the majority of business terms and conditions:

  1. A description of the goods or services being sold, how an order is to be placed and when a business is deemed to have accepted the order.
  2. The purchase price payable. This might be a set agreed price for the contract, or it might be referenced to a price list which might be updated from time to time.
  3. Specific payment terms and what will happen in the event of late payments or non payment by the customer. For example, will the customer have to pay interest until the agreed price has been paid in full? How will that be calculated? Can the business suspend performance of future obligations under the contract until the customer payment obligations have been brought up to date? Key provisions controlling late payment can be particularly important for a small business where cashflow might be critical.
  4. Delivery terms. Are delivery dates guaranteed or will the company use reasonable efforts to meet an agreed delivery schedule? For an online services, will the customer be able to instantly access the services or will they be available at a later time?
  5. Termination provisions – for example, in what circumstances either the business or the customer will be entitled to terminate the contractual relationship. This might include payment not being made by the customer within a specified period, the customer becoming insolvent, breach of the contract by either party etc. It should be made clear whether or not a period of notice must be given before termination, and if so how much notice must be given.
  6. Intellectual property ownership – this includes copyright, design rights and trade marks. A business owner is often keen to ensure that they do not inadvertently give away ownership of any intellectual property rights.
  7. Whether the company is giving any guarantees or warranties in relation to their products or services being sold, and whether there are any exclusions to or rules in relation to any such guarantee or warranty. For example, is there a time limit on when claims can be made under the guarantee or warranty? Is there a limitation on the type of claim which can be made – for example, are claims excluded if the customer has failed to follow any instructions given in relation to the use or storage of a product? Is there a longstop date for latent defects?
  8. Limitation of liability. This is usually a very important clause for business owners to ensure is included in their terms and conditions (as well as in most commercial agreements that a business might enter) as it will enable a business to limit their potential liability to their customers. See below for more detail.
  9. Confidentiality and data protection. These provisions will vary in importance depending on the service being offered, and whether it is important for customers to keep information confidential. Confidentiality is likely to be more important if a business has trade secrets or intellectual property to protect. Provisions relating to customer personal data should be set out in a separate privacy notice (which is also typically made available on a website).

Regardless of whether products are being sold to consumers or other companies, it is important that a business ensures that its terms reflect its internal business practices, processes and procedures.

How to limit liability

This can be limited in a number of ways. It will often include clauses limiting (or excluding entirely) its liability for certain breaches of the contract where lawful to do so. This gives a business as much certainty as possible as to their potential risk if things go wrong.  For example, liability might be linked to the level of their insurance, or to the fees received under the contract.

In addition to clear limits on financial exposure under the agreement, a business may seek to limit or exclude its potential risk on specific performance issues – for example, if the date for delivery is missed, will the customer be able to terminate? Will the seller have to make a liquidated damages payment?

There are some types of liability which a business selling goods and services are legally required to be responsible for and cannot therefore be limited or excluded. For example, any attempt to exclude responsibility for death or personal injury will not be valid and therefore will not be legally binding on either party, even if they have agreed to it in the agreement.

Any limitation that is imposed in the agreement should be reasonable and proportionate to the type and value of the service provided or the goods supplied.

A business should seek to cap its risk in all agreements and contracts that it enters into wherever possible.

The importance of the governing law

Terms should make clear which country’s laws will be used as the governing law for the agreement (also referred to as the “applicable law” of the agreement). This governing law will be applied to identify and interpret the rights and obligations of the parties to the contract, and how any disputes will be dealt with. Different jurisdictions have different rules of contract law, and therefore most companies will want their local governing law to apply.

When does consumer protection apply and how to make your Business Terms legally binding?

Consumer protection legislation sets out various terms and conditions which must be included in business terms where the customer is an individual. This is to protect individual customers’ rights, and to ensure that the rules laid out in the Consumer Rights Act 2015 are properly incorporated into your T&Cs.

If you deal with individual consumers, generally speaking your T&Cs must include the following (among others):

  1. Any goods supplied must be fit for purpose and be as described
  2. A right to cancel the contract with you
  3. A right to return goods supplied within 30 days from the delivery date
  4. You must provide the customer with certain information about the goods or service you are supplying

There are some exceptions to the rules set out above, for example where you are supplying bespoke goods.

It is important to take advice on your terms & conditions to ensure that they comply with any relevant consumer rights legislation.

Unfair contract terms

In addition to complying with any consumer rights provisions, a business setting to both individual consumers (B2C) and other companies (B2B) must ensure that their terms do not include any “unfair terms”. Any term which is deemed to be “unfair” will not be enforceable. The scope of what is considered to be unfair varies depending on whether a business is selling to individual consumers, or other businesses.

When selling to an individual consumer, you must ensure that all terms are clear and transparent. Any terms which are in breach of the consumer rights act are deemed to be automatically unfair and therefore not legally binding. Where a business seeks to limit or exclude its liability to the customer, they should ensure that the customer’s attention is particularly drawn to that section – for example but using bold text or capital letters to make the provision more prominent.

When selling to other companies, generally speaking the law allows businesses to contract on whatever terms they see fit. This is the case even where a small business might be negotiation of an agreement with a much larger company. However it is possible to challenge clauses which are extremely unfair, such as an attempt by a party to completely exclude any remedy for their breach of the agreement.

If you need any advice on Business Terms and Conditions please contact a member of our corporate and commercial law team in confidence here or on 02920 829 100 for a free initial call to see how they can help.

To speak to one of our experts today, please contact us on 02920 829 100 or by using our Contact Us form for a free initial chat to see how we can help.

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