Terms & Conditions Part 2 – What Do I Need In My Terms & Conditions?

Euan McLaughlin, (pictured) a partner at Sills & Betteridge and a member of our Corporate & Commercial Team, has written a series of three articles telling you everything you need to know about Terms & Conditions. In this second of this three articles, Euan explains what you need in them.

There is no “one size fits all” solution to what goes in your terms & conditions. As I mentioned in my previous article, one of the key first steps in creating your terms & conditions is for the business and the solicitor to have a discussion about your products and needs. The following is therefore a general guide of the types of issues that should be dealt with in most sets of terms & conditions.

Specification:

• You need to be clear what you are selling. This may be set out in your terms & conditions, or it may require a separate document. If it is the latter, then you need to ensure that your terms & conditions clearly sign-post the customer to that document;
• It is always tempting to say (and believe) that the product you supply is perfect, but this can be unwise. If your manufacturing process has a tolerance of 2%, for example, then you need to be clear about this if you want the tolerance to apply to your customer too.

Financial:

• A primary aim of most businesses is to make money. This may sound like a statement of the obvious, but I am always staggered by the number of contract documents which are unclear about (i) how much is to be paid; (ii) how; and (iii) when. Vague statements like “28 days payment terms” can leave businesses in a real mess when pursuing payment;
• Another common issue in this area is a lack of clarity about what is included in a stated price. I often hear from clients that X, Y and Z are intended to be “extras”, but their contract documents make no mention that (a) these items are excluded from the price, or (b) how much extra they cost.
• Finally on this topic, there is the issue of price variability. Some businesses vary their prices annually (e.g. by issuing a new price list) or in the event of circumstances changing (e.g. raw material costs increasing) –this needs to be dealt with clearly in your terms & conditions.

Ownership and loss:

• If you are supplying goods on credit terms, there is a period between supply and payment where you are at risk – the goods are out of your control but you haven’t received full payment for them. If your customer becomes insolvent in that period, then it is critical that you have a robust and properly-drafted clause retaining title – otherwise you may end up getting little or nothing from the insolvency practitioner;
• It is also important that risk of loss is clearly allocated. Whether you are selling goods, or providing services in respect of the customer’s goods, you need to be very clear about when you are responsible for loss or damage to the goods, from both a liability and an insurance perspective.

Liability:

• The first element of liability to cover is your ongoing responsibility for the goods/services supplied – how long is your warranty, what does it cover, what does the customer receive if the warranty is triggered and so forth. Do you offer any additional ongoing servicing or support?
• The second is a cap on liability – usually businesses look to limit their liability to a maximum amount. In the absence of a cap on liability, then you may have unlimited liability – for which you are unlikely to be insured!
• The third is an area that is often referred to as “consequential losses”. This is probably the most common area in which I see terms & conditions which are poorly drafted – it really does require the technical knowledge of a skilled commercial solicitor to get this right;
• Many businesses have a vague awareness of these issues, and take the understandable approach of excluding or limiting any and all liability that they can think of. This is extremely dangerous. There are various pieces of legislation restricting your ability to limit liability in an “unfair” way, and if you fall foul of such legislation then your limits of liability may be deleted altogether. Your business ought more sensibly to accept a limited amount of potential liability than to attempt to remove all liability altogether. Again, this is an area that needs detailed legal analysis specific to your business to properly deal with.

Legislative & Regulatory Issues:

• If you deal with consumers, then there are various rules and regulations on items that must be included in your terms and conditions, along with penalties for failing to comply;
• There are a whole host of other regulatory and legislative issues – from those affecting most business (such as GDPR), to those specific to certain businesses or industries (environmental, vehicle-based, agriculture).

Hopefully this is useful guidance on the issues to be dealt with in your terms & conditions. In the final article, I will talk about how to use your finished terms & conditions.

Euan McLaughlin joined Sills & Betteridge in 2009, qualifying as a solicitor in 2011. He is originally from Boston but is now based at our Lincoln office. Euan has extensive experience of advising on and negotiating all kinds of commercial agreements, from standard terms to large-scale individual contracts. To contact Euan, please call 01522 542211 or click here to view his profile on our site.

The corporate department at Sills & Betteridge has an experienced team of lawyers who are committed to assisting our clients with the full range of legal services required by businesses. Our expertise with both large and small enterprises, from owner-managed businesses to listed companies, means that we can tailor our legal advice to your specific needs and offer you the most appropriate, efficient and cost-effective solutions. We are able to offer advice on commercial law to clients at a local, national, and international level. To find out more about our corporate and commercial services, please visit https://www.sillslegal.co.uk/corporate-sale-purchase/