The importance of terms and conditions in business contracts

The importance of terms and conditions and making sure they form part of your business contracts SOCIAL.jpg.jpg

Terms and conditions (T&Cs) form an important part of many business transactions, providing a legal framework governing the rights and obligations of the parties. They help ensure transparency and certainty and reduce the risk of disputes between the parties involved.

Recent research carried out by the University of Law found that 68 per cent of people either don’t read or don’t understand contracts they sign for, which is a frightening statistic. If you’re involved in any kind of business, you will appreciate how costly this can be.

Paul Matthews, a specialist in preparing contractual agreements and head of WHN Solicitors’ corporate and commercial team, looks at some key considerations when using T&Cs under English law. He also sheds light on their importance for businesses and highlights why T&Cs deserve greater attention than they are routinely given.

Do your T&Cs apply to the contracts you enter into?

Even the very best T&Cs will not apply if they do not form part of the business contract that you may be entering. For a contract to be formed, the following four requirements must be met:

  • Offer
  • Acceptance
  • Consideration
  • Intention to create legal relations.

In almost all cases where an order for goods or services is placed, these requirements are usually met. Whether T&Cs will form part of the contract will then depend on at what point during the transaction that the requirements were met.

If the four requirements are met (and therefore a legally binding contract is formed) before you put your T&Cs to the other party, your T&Cs will likely not apply to that contract.

A variation on this is where both parties have T&Cs they wish to introduce into contractual discussions. In this scenario, the point at which these requirements are met determines when the contract is actually formed. This may for example be at some point within a chain of emails or by one party performing its obligations, for example, delivering the goods or services. The process and timing of these events is critical in determining whose T&Cs apply and the final terms of the contract.

It is also therefore very important as part of a review of T&Cs to also review your procedures for entering into contracts and train your staff on those procedures. Doing so will greatly increase the chance of your T&Cs applying to the contracts you enter.

Different T&Cs for consumers and businesses

If you operate a business you must take extra precautions when contracting with a consumer, as they are protected under the Consumer Rights Act 2015. It is important to note that the protections afforded to consumers are different to those afforded to businesses. It is therefore recommended to have two sets of T&Cs in place.

Unfair contract terms and consumer protection

The Unfair Contract Terms Act 1977 needs to be considered in relation to both contracts with consumers and contracts with other businesses. Broadly speaking, this legislation will render certain provisions in contracts void and other provisions valid only if reasonable.

In relation to contracts with consumers, T&Cs must not contain unfair terms that significantly disadvantage consumers. Unfair terms may include unclear terminology, or terms that disproportionately restrict consumer rights, or attempt to exclude or limit liability for negligence.

With contracts between businesses, there is greater freedom to impose harsher obligations and restrictions on the other party. Some businesses may seek to use this freedom to their advantage; however, other businesses may see putting forward fair and balanced T&Cs as part of the positive image they wish to project as a business.

Whatever your desired approach, it is important to be aware of the laws surrounding unfair terms and conditions. You should avoid drafting anything that could be deemed unfair or unreasonable, while ensuring that terms are clear, unambiguous and not hidden or drafted intentionally to cause ambiguity (for example concealing important limitations within reams of small print).

Instructing an expert to draft or review and negotiate the T&Cs that you use, or that you receive from another party, is highly recommended.

The key terms to include in a contract

Although all terms of a contract are important, there are some key terms which carry additional weight due to their financial and other implications to businesses. These include:

Duration and termination

These explain the circumstances in which the contract will come to an end. This may be either by the expiry of a fixed term or a party giving notice to terminate. They should also outline the circumstances in which a party may suspend its obligation to supply goods or services. Note that there may be conditions attached to any termination rights and potentially other financial implications.

Price

This may appear obvious, but it is important to make sure that pricing provisions are clear in the T&Cs and that appropriate consideration is given to how you want to deal with extra costs such as delivery charges. You should also consider whether a mechanism for increasing prices is needed.

Security, privacy policy and data protection

Such terms will cover how organisations collect, use, and protect personal information. It may include details about data collection, storage, sharing, and the use of cookies or other tracking technologies. You should consider whether there are any specific requirements or restrictions, such as additional security measures, that you would like the other party to comply with.

Intellectual property rights

These provisions address the ownership and protection of intellectual property (IP), such as copyrights, trademarks, or patents. They will generally make clear that, by entering the contract, a party does not assign any of its IP rights to the other party and will set out limited purposes and the terms upon which the other party may use the IP rights.

IP rights are critical to many businesses and great care is needed when drafting T&Cs to ensure such rights are appropriately protected. A party receiving information, goods and/or services may wish to ensure that the party providing them has the required IP rights to do so.

Limitations of liability

These clauses seek to limit the liability of a party in relation to defects in, or damage caused, by goods or services supplied as well as other breaches of contract. Such clauses may, for example, specify that the party is not responsible for any indirect, incidental, or consequential damages.

Clauses which seek to exclude or limit the liability of a party are significantly restricted by law for example, the Unfair Contract Terms Act 1977, so it is key that you consider the value of the contract, the likely level of losses or damage the other party may suffer and the availability of insurance. Expert advice is particularly important if such clauses are to be effective.

Indemnities

An indemnity is an agreement between parties that states, in the event of specified circumstances occurring, the other party will bear on a pound for pound basis, specified losses, expenses or liabilities incurred by the innocent party. The specified circumstances triggering liability under the indemnity could be a breach of contract by the other party, or default on the part the other party. In practice, indemnities are often drafted in wide terms and there is a significant danger that they may (inadvertently or otherwise) cover circumstances for which a party may not expect to be liable. It is not, for example, unknown to see indemnities in which one party is asked to indemnify the other party against liability for that other party’s breach of contract.

Furthermore, unlike with other breach of contract claims, there is no question of the court assessing the level of financial loss incurred by the party bringing the indemnity claim or that party having to mitigate its loss i.e., take reasonable steps to keep its loss to a minimum.

With an indemnity, the party bringing the claim simply needs to show that circumstances triggering the indemnity have occurred and that the specified losses, expenses or liabilities covered by the indemnity have been incurred. If the party can demonstrate these, it is entitled to be reimbursed on a pound for pound basis.

That makes an indemnity a powerful tool for the party with the benefit of the indemnity but potentially dangerous for a party asked to give an indemnity and, as a result, it is essential that any indemnities are very carefully drafted. This is a very good illustration of the importance of getting professional advice on T&Cs which other businesses ask you to accept – do you know and understand the potential extent of your liability under any indemnities those T&Cs seek to impose on you?

Protecting the interests of businesses and consumers

Terms and conditions are a vital component of business operations in the UK, providing a legal framework that governs transactions and protects the interests of both businesses and consumers. By understanding the importance of T&Cs, incorporating essential elements, and complying with consumer protection regulations, businesses can establish a solid foundation for successful and transparent relationships with their customers.

Paul Matthews advises clients on a range of corporate and commercial transactions including company and business sales and acquisitions, management buyouts and general commercial contracts. If you are entering into or seeking to prepare a business contract and need some legal help regarding your terms and conditions, please contact Paul on 0161 761 4611 or email: [email protected]

Enjoyed this? Read more from Woodcocks Haworth & Nuttall Solicitors

Latest news

1

Dog greetings card firm lands John Lewis partnership Scoff Cards

Dog greetings card firm lands John Lewis partnership

22 May 2024

2

Online horse health retailer opens larger premises and first shop Hannah Wild

Online horse health retailer opens larger premises and first shop

22 May 2024

3

Net zero: Why SMEs are important Net zero.jpg.jpg

Net zero: Why SMEs are important

22 May 2024

4

Hotfoot designs new website for Cincinnati Shakespeare Company Hotfoot 2.jpeg.jpg

Hotfoot designs new website for Cincinnati Shakespeare Company

22 May 2024

5

Hyndburn's culture and community to connect at special event The Connecting Cultures event will take place at Haworth Art Gallery in June.jpg.jpg

Hyndburn's culture and community to connect at special event

22 May 2024

Lbv116 Ltb Strip980
Background image for hub sign up block

LBV Hub

Reach 50,000 members of the Lancashire business community

Post your news
Post your events
Post your offers
Company profile
Social reach
Magazine coverage
Sign-up
Events
Creative Lancashire Networking Social
Untitled design-4.png.png
LBV Hub Networking
23 May 2024

Creative Lancashire Networking Social

Society1 Coworking Space, Preston, PR1 3LT

17:30 - 19:30

Chamber Breakfast Networking
Chamber Logo1.png.png
LBV Hub Networking
23 May 2024 - 23 May 2024

Chamber Breakfast Networking

HIC, Lancaster University, Bailrigg, Lancaster, LA1 4AT

08:00 - 10:00

Business Networking in Lancaster - BNI Castle
EVENT LISTING BNI Castle.png.png
LBV Hub Networking
23 May 2024 - 23 May 2024

Business Networking in Lancaster - BNI Castle

Vale of Lune RUFC, Powder House Lane, Lancaster, LA1 2TT

06:45 - 08:30

Business Networking in Burnley - BNI Kudos
EVENT LISTING BNI Kudos.png.png
LBV Hub Networking
23 May 2024 - 23 May 2024

Business Networking in Burnley - BNI Kudos

Prairie Sports Village, Windemere Avenue, Burnley, BB10 2FU

06:45 - 08:30

Business Networking in Preston - BNI Brunch
EVENT LISTING SIZING Brunch .png.png
LBV Hub Networking
24 May 2024

Business Networking in Preston - BNI Brunch

Samlesbury Hotel, Preston, PR5 0UL

09:30 - 11:00

Business Networking in Blackburn - BNI Infinity
EVENT LISTING BNI Infinity.png.png
LBV Hub Networking
24 May 2024

Business Networking in Blackburn - BNI Infinity

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:30 - 08:30

Music In the Park
Music in the Park.jpg.jpg
LBV Hub Fundraisers
26 May 2024

Music In the Park

Worden Park, Worden Lane, Leyland, PR25 3DH

12:30 - 22:30

Business Networking in Chorley - BNI Endeavour
EVENT LISTING SIZING Endeavour.png.png
LBV Hub Networking
28 May 2024

Business Networking in Chorley - BNI Endeavour

Oak Royal, Bury Lane, Chorley, PR6 8SW

06:30 - 08:30

Business Networking in Blackburn - BNI Vista
EVENT LISTING SIZING Vista.png.png
LBV Hub Networking
28 May 2024

Business Networking in Blackburn - BNI Vista

Hampton by Hilton, 2 Frontier Ave, Blackburn, BB1 3AL

06:45 - 08:30

Business Networking in Accrington - BNI Zeus
EVENT LISTING SIZING Zeus.png.png
LBV Hub Networking
29 May 2024

Business Networking in Accrington - BNI Zeus

The Mill House, Corn Mill Yard, Accrington, BB5 5HX

06:45 - 08:30

Business Networking in Preston - BNI Diamond
EVENT LISTING BNI Diamond.png.png
LBV Hub Networking
29 May 2024 - 29 May 2024

Business Networking in Preston - BNI Diamond

The Marriot Hotel, Garstang Road, Broughton, PR3 5JB

07:15 - 09:00

Business Networking in Lancaster - Eden Business Network
Eden Business Network.png.png
LBV Hub Networking
29 May 2024 - 29 May 2024

Business Networking in Lancaster - Eden Business Network

The Borough, 3 Dalton Square, Lancaster, LA1 1PP

18:30 - 20:30

Advertise with us

Reaching 50,000 members, our print, digital and event platforms offer a fantastic way to raise your business profile and help you grow.

Find out more LBV116 Online Graphic
Subscribe now

Weekly news bulletin