How to set up and run a small business

Leaderboard – Run – Legal

You are here: Home » Run a Business » Legal » Why it’s vital you have clear ‘Terms & Conditions’ for your business

Why it’s vital you have clear ‘Terms & Conditions’ for your business

April 26, 2016

New start-ups and small businesses often fail to give much thought to their standard “Terms and Conditions of Business” (T&Cs). That is, until there is a dispute with a customer, by which time it may be too late.

Business owners who are unaware of the importance of T&Cs can even find that they are conducting business on their customer’s Terms and Conditions of Business. This can happen when a customer successfully substitutes their own T&Cs for yours. If this is the case, you could be in for a very nasty shock when a customer complains.

To help make sure you protect your business, and only work on the basis of your Terms and Conditions of Business, we asked Sheren Thiara, of Wright Hassall Solicitors, to explain why T&Cs are so crucial for businesses and to give some practical advice on how you make sure the work you do is under your standard T&Cs.

Why “Terms and Conditions” are important

The legal basis on which you are willing to do business with your customers should be one of the first things you consider when starting up your business and should form the basis of your standard, “Terms and Conditions of Business“.

Well drafted T&Cs are important for a number of reasons, and give you and your business a number of benefits;

1. Protect you and your business

They are key in protecting your business and avoiding unnecessary risk, whether this be the protection of your reputation, cash flow or any other element of your business.

2. Provide reassurance and certainty

They help create certainty for you and the person you are doing business with. In the event that anything should go wrong in the course of business then a good set of T&Cs will make clear whether there has been a breach of contract.

3. Cover all bases

They help you to cover all of the important matters and not overlook less obvious issues. When thinking about your T&Cs, consider the kind of business you do, who you do it with (and potential risk associated with their business), what cash flow you require and transactions which could potentially go wrong.

4. Cut the likelihood expensive legal disputes

They help to minimise the risk of legal disputes. Legal disputes are stressful, costly and harmful to reputation. A robust set of T&Cs will limit the chances of a solicitor advising your customer to take an issue to court.

To this end, if there are specific regulations that apply in the industry in which you are doing business, it would be wise to make reference to these in your T&Cs.

5. Give customers confidence

They reduce the risk of you not meeting your customer’s expectations. Repeat custom is key to a business; failure to meet a customer’s expectations significantly reduces the chance of them coming to you again to supply products or services. Clearly stating key terms on issues such as delivery and returns will give the customer confidence when placing orders with you.

It is important that you review your T&Cs to ensure that they consistently meet the needs of your business.

Things to include in your “Terms and Conditions”

There is no ‘one size fits all’ when it comes to creating T&Cs for your business. However, there are some key legal points that the T&Cs should cover, these include:-

  •  Clear definitions and descriptions of what products or services will be provided;
  • Payment terms including consequences of failure to pay;
  • Conditions relating to delivery or performance, e.g. where you are selling products, specify the time and place of delivery;
  • Setting out any guarantees or warranties offered in respect of the products/services to be supplied;
  • Consequences of failure by either party to meet their obligations, such as subsequent termination of the contract;
  • An appropriate cap or limit on your liability under the contract;
  • The term of the contract and what notice is required to get out of it; and
  • Which law shall govern the contract.

In addition, if you supply products, services or digital content to consumers rather than other businesses, there are specific issues you must cover in your T&Cs, such as the right for a consumer to return goods or cancel a contract within a specified time. For further information on this, read; The Consumer Rights Act 2015 – 7 Key points for small businesses.

Incorporating your Terms and Conditions

T&Cs will be useless unless you follow proper procedures to ensure they are incorporated and/or prevail over any competing T&C’s put forward by your customers.

The common law rule is that a contract is formed when one party makes an offer and the other party unequivocally accepts the offer. Once a contract has been formed, new contract terms cannot be introduced unless by mutual consent. Therefore, T&Cs must be incorporated just before, or at the time of, acceptance.

Accordingly, the all too frequent business practice of sellers seeking to impose their T&C’s by printing them on the back of their invoices will often not be sufficient to incorporate their T&C’s into the contract, as invoices are traditionally despatched after the contract has already been formed.

Battle of the forms

While seller’s T&Cs are more usual, it is not uncommon to see customers trying to do business on the basis of their own purchasing T&C’s. A battle of the forms arises when both parties are negotiating the terms of a contract and each party wants to contract on the basis of its own T&Cs.

If both parties try to impose their T&Cs, difficulties arise in deciding which ones prevail.

In practice, the battle is often won by the party who fired the “last shot”, that is, the last party to put forward T&Cs that were not explicitly rejected by the other party before the contract was formed.

What if your Terms and Conditions are not incorporated?

Clearly there is some form of agreement between you and your customer. If a court does not accept that the transaction was conducted on your T&C’s and there are no other express terms forwarded by your customer (see ‘Battle of the Forms’ above), it may imply terms into the contract. However, they will only do this where:-

  • It is necessary to give business efficacy to the contract so that even though the terms seem complete, there is something without which the contract will not be able to work in the way it was intended. For example, you sell apples to a bakery and they pay you an agreed sum. In these circumstances, there would be an implied term that the apples would not be rotten;
  • The implied term represents an obvious (but unexpressed) intention of the parties. A court will not be keen to imply terms where two commercially sophisticatedparties have entered into a detailed written contract but will be more forgiving where there are no written terms at all. For example, where a court is not satisfied that your T&C’s have been incorporated but also that your customer is not relying on theirs;
  • It is implied through custom. For example, a court will do this where there is an invariable, certain and general custom of a particular trade; or
  • It is implied through a previous course of dealing. Where you and your customer have dealt with each other previously on similar contracts and consistently dealt with matters in a certain way, a court may be prepared to imply a term relating to that previous course of dealings if there is no express term to that effect in the current contract.

Of course, it is far better to be able to rely on your own T&Cs in relation to a contract rather than incur additional time and expense trying to persuade a court to imply a term into the contract between you and your customer. Furthermore, you will be able to put far more into your T&C’s than a court would ever imply.

Practical Tips to make sure you do business under your Terms and Conditions

  • Ensure your T&Cs are brought to your customer’s attention at the earliest opportunity. Consider setting out your T&Csin your brochures, catalogues or other marketing material, on your quotation forms, website and on your acknowledgement of order.
  • Attach your T&C’s to your invoices; while this is rarely sufficient to incorporate your T&Cs (see above),if you seek to rely on course of dealing to show that your T&Cs have been incorporated, this will evidence that your T&C’s had been brought to your customer’s attention over time.
  • Train your sales staff in your standard sales procedures and ensure they have at least a basic working knowledge of the rules of contract formation, e.g. the rules around offer and acceptance and the meaning of the ‘battle of the forms’.
  • Get your T&Cs in first and last!

The scope of this article is limited to give guidance to enable you to do business on the basis of your T&Cs. However, you still need to ensure that your T&Cs are legally compliant and therefore enforceable.

For example, if your T&Cs include a condition that attempts to limit your liability for personal injury or death caused by your negligence, this is not enforceable under English law.

It is important that you draft your T&C’s carefully as well as putting procedures in place to ensure your T&Cs are successfully incorporated into your contracts so that you can safely rely on them in the case of a dispute.

Although there is a wealth of information online regarding T&Cs, it is advisable that you go to a commercial contracts lawyer to ensure you create a robust set of T&Cs which protect your business.

About the author

This guide has been written for ByteStart by Sheren Thiara from the Outsourcing, Technology and Commercial team at Wright Hassall Solicitors.

More help on legal matters from ByteStart

ByteStart has guides on a whole range of business law issues that startups and small businesses may come across, including;

And these will help you to understand and comply with your duties with regard to employment law;