Why “Terms and Conditions” Are An Important Tool For Every Business

17 November, 2020 | Bret Gower

Your business’ “standard terms and conditions” establish the basis of every contractual relationship between your business and your customers. Clearly setting out the contractual basis of your business arrangements with your customers helps to clarify a whole range of important issues and minimises your business’ risks.

If you operate on a ‘handshake’ basis, without a clearly defined set of terms and conditions, your business relies on the decency and reasonableness of your customers, and further you risk contracting with them on the basis of their terms and conditions.  You also risk unintended consequences that can occur as a result of terms being implied into your contract in the event you need to enforce them.

Custom terms and conditions

We are regularly provided with examples of terms and conditions clients are using that they have cobbled together from examples they have copied from similar businesses or downloaded from the internet. The risk to these clients is that the terms and conditions have not been tailored to their specific business requirements. Often they have been amended by somebody who is not skilled in drafting legal documents and as a result the terms and conditions are potentially not binding on their customers or are unenforceable by them.

Our approach is to work closely with you to tailor terms and conditions that are specific to your business. We utilise our knowledge from handling commercial disputes and debt collection issues, with our experience working with thousands of businesses across a wide range of industries, to tailor your terms and conditions to meet the specific needs of your business, minimise the risk to you, and enable you to enforce your contract with your customers. We often review and package together a business’ terms and conditions with its website terms of use (which for an online-only business can amount to the same thing) and its website privacy policy.

Important considerations

When reviewing your terms and conditions you should consider whether the following factors are covered:

Acceptance – at what point is an agreement reached between your business and its customers that is binding and enforceable (required to form a legally binding document)?

Title and risk – when does the title in the goods pass from your business to its customers? Who is responsible for insuring the goods and when does that insurance commence? Who insures the goods in transit?

Obligations – are there obligations on your customers once an agreement is in place, and what is your business obliged to do and when?

Price and payment – how is the price determined, in what circumstances can your business vary the price, how is the price to be paid and when?

Warranties – does your business provide any warranty over its goods or services, or are the warranties limited to the warranties provided by the third party manufacturer?

Liabilities and indemnities – are there any limitations on the liabilities of the parties, and do either of the parties indemnify the other in any circumstances?

Default and its consequences – what amounts to a default of a party and what are the consequences of a default by a party?

Termination and its effects – in what circumstances can the agreement be cancelled and by whom, and which, if any, of the provisions remain on foot after the agreement ends?

Confidentiality and intellectual property – how is the agreement to remain confidential, who owns the intellectual property developed under the agreement, how are the parties restrained from using the confidential information or intellectual property?

Disputes – what will happen if the parties cannot agree? What is the mechanism for resolving a dispute?

Privacy – how does the business deal with personal information belonging to the customer? How do the provisions of the Privacy Act 2020 impact on the agreement?

Security – if your business provides goods on credit to its customers, does your business have the ability to secure any money owed against property belonging to your customers (either land or personal property)?

Non-solicitation and restraint – does your business have the ability to prevent its customers from soliciting employees or other customers away from the business?

Legislation and governing law – are the parties required to adhere to particular legislation, and what is the jurisdictional framework that governs, and allows the parties to enforce, the agreement? For example, if you sell goods or services internationally, can an overseas court decide a dispute in relation to your agreement?

First steps

The first step in reviewing your business terms and conditions is to consider each of the above points, whether they are covered in your current terms and conditions, and then have a conversation with one of the team of commercial lawyers at Smith and Partners. We can very quickly assess whether your existing terms and conditions are fit for purpose and we can then provide expert advice in updating or drafting entirely new terms and conditions for your business.

For an initial chat about and/or to seek specific advice on reviewing your business terms and conditions, contact commercial lawyer, Bret Gower by phone on 09 837 6893 or email bret.gower@smithpartners.co.nz