In today’s modern age, a well-drafted Terms and Conditions document is essential for any business offering services or products on credit. Often also referred to as Terms, Terms of Service, Conditions of Sale, or General Conditions, this document sets the foundation for the contractual relationship between a service provider and its clients. At Debt Free, we emphasise the importance of having robust Terms and Conditions to protect your business, manage risks, and ensure smooth operations.
What are Terms and Conditions?
Terms and Conditions are legally binding agreements that outline the rules and guidelines clients must follow when using your service or acquiring a product from you. They serve multiple purposes, including protecting intellectual property, limiting liability, and clarifying the responsibilities of both parties, including payment obligations.
Benefits of Terms and Conditions
- Enables legal compliance and minimises risk: Laws like the Privacy Act 2020, the Personal Property Securities Act 1999, the Construction Contracts Act 2002 and the Fair Trading Act 1986 should be included in your Terms and Conditions to ensure legal compliance.
- Provides the ability to register security interests: By having security interests in place, you can ensure that you get paid first if a client enters insolvency and are protected from clawbacks from liquidators or voidable transactions.
- Pass on collection and court costs: Having Terms and Conditions allows you to legally pass on the costs of collecting an overdue account.
- Avoid stressful situations like sleepless nights: Say goodbye to negotiating with clients for your hard-earned money. Solid Terms and Conditions keep everything fair and establish what will happen in any situation, such as cancellations, delays, variations, or unforeseen difficulties.
- Preventing and Resolving Disputes: By providing a clear framework for resolving disputes, Terms and Conditions ensure that both parties understand their rights and obligations by setting out a clear agreement and removing grey areas by covering industry-specific risks and liabilities.
When are Terms and Conditions Needed?
Terms and Conditions are particularly crucial for:
- Large Jobs: To protect against potential losses, a proper Terms and Conditions is recommended for any large work that can cause problems if the invoice was not paid on time.
- Complex Work: If the job seems complex or there are unseen or unknown complications, a solid variation clause allowing your business to increase the price if extra work is required will be invaluable.
- New Clients: When approaching new clients, every business should have Terms and Conditions to ensure payment and remove significant risk for the new transaction.
- Every Business: Every business should have Terms and Conditions to protect cash flow (even second-hand clothes stores with an average sale of a few dollars have one).
Your business’s Terms and Conditions are the foundation for all contractual relationships between you and your clients. Clearly outlining these terms helps address key issues in your business dealings and reduces potential risks.
If your business operates on informal agreements, like a handshake deal, without clearly defined terms and conditions, you rely on your clients’ fairness. This also means you risk operating under their terms, which could lead to unfavourable outcomes. In situations where you need to enforce the agreement, certain terms might be implied without your knowledge, creating unintended consequences.
The Importance of Customised Terms and Conditions
Often, businesses use terms and conditions that have been pieced together from other sources or downloaded online. This approach is risky because the terms may not be tailored to your business needs. When someone without specific expertise alters these documents, they may become unenforceable or invalid legally.
Our process involves working closely with you to create terms and conditions specifically designed for your business. Drawing on our experience in commercial disputes and debt collection across various industries, we ensure your terms are aligned with your business requirements, minimise risks, and enable you to enforce contracts effectively.
Key Elements of Terms and Conditions
When developing or reviewing your terms and conditions, it’s essential to address the following factors:
- Acceptance: At what point is the agreement binding and enforceable?
- Title and Risk: When do the goods legally transfer from your business to the client? Who is responsible for insuring the goods, and when does this responsibility start? What about goods in transit?
- Obligations: What obligations does your client have once the agreement is in place? What are your business’s obligations, and when must they be fulfilled?
- Price and Payment: How is the price determined, and under what conditions can it be changed? When and how should payment be made?
- Warranties: Does your business offer any warranties, or are they limited to third-party warranties?
- Liabilities and Indemnities: Are there any limits to the liabilities of each party? Are there situations where one party must compensate the other?
- Default and Consequences: What constitutes a default, and what are the repercussions if either party fails to meet their obligations?
- Termination: Under what circumstances can the contract be terminated, and by whom? Are there any provisions that remain in effect after termination?
- Confidentiality and Intellectual Property: How is confidentiality maintained, and who owns any intellectual property created under the agreement?
- Disputes: What process will be followed if the parties cannot resolve a disagreement?
- Privacy: How is the client’s personal information handled in compliance with the Privacy Act 2020?
- Security: If you offer credit terms, can you secure the money owed by claiming your client’s property?
- Non-solicitation and Restraint: Can your business prevent clients from soliciting your employees or other clients?
- Legislation and Governing Law: What laws govern the agreement, and which courts have jurisdiction if disputes arise? If you operate internationally, can foreign courts enforce the contract?
Crafting Effective Terms and Conditions
Tailoring your Terms and Conditions to your specific business needs is essential. Consult a Professional like Debt Free to ensure your Terms and Conditions are comprehensive and legally compliant. After all, we are the only business in New Zealand that guarantees our terms and conditions, which were created using the most respected law firms in New Zealand.
Determining When Terms and Conditions Take Effect
The effectiveness of terms and conditions largely depends on the clarity of the language used. Courts tend to favour clear, unambiguous terms that ensure all parties are fully aware of their obligations. Ambiguous language can lead to disputes, so businesses must communicate in a way that’s easily understandable by the average consumer.
Acceptance
A critical factor in the enforceability of terms and conditions is understanding when a client accepts them. Once accepted, both parties are legally bound to fulfill their obligations as outlined. Without clear acceptance, the contract may not be legally binding, and the terms cannot be enforced.
There are two main types of acceptance:
- Express Consent: This is the most straightforward method, where clients clearly and explicitly agree to the terms. This can be done through physical documents (such as contracts or service quotes) or electronically, such as via email. The client must confirm their acceptance, ensuring clarity in the agreement.
- Implied Consent: Implied consent occurs when the client’s actions indicate acceptance of the terms. For instance, if a client asks you to proceed with a service, their actions may imply they have accepted your terms and conditions.
Businesses often rely on implied consent through website usage, but this approach is riskier. Explicit acceptance, such as a client clicking “I Agree,” is more legally secure.
Timing of Terms and Conditions
The timing of when terms and conditions take effect depends on the context of the transaction. Here’s how timing may work in different scenarios:
- Pre-Contract Negotiations: Before a contract is formalised, businesses and clients often engage in negotiations. During this stage, terms are not yet binding. The distinction between an “invitation to treat” (an invitation to negotiate) and an “offer” (a proposal to form a contract) is essential. Only once the offer is accepted do the terms become legally binding.
- Online Transactions: In online transactions, there are two common mechanisms for accepting terms and conditions.
- Clickwrap Agreements: These require users to actively click “I Agree,” signalling explicit acceptance. Once the user agrees, the terms and conditions take immediate effect.
- Browsewrap Agreements: These infer acceptance from the client’s continued use of the services.
Other Key Considerations
In New Zealand, businesses must be mindful of the Consumer Guarantees Act 1993, which protects consumer rights. This legislation ensures that businesses provide fair and reasonable terms, adding an additional layer of protection in consumer transactions. To avoid penalties and disputes, businesses must ensure their terms and conditions comply with these legal requirements.
Common Misconceptions and Tips
- Express vs. Implied Consent: Ensure users explicitly agree to the Terms and Conditions by clicking an “I Agree” checkbox or signing a document. Implied consent (for example, continued website use) is less secure and may not hold up in legal disputes.
- Timing of Acceptance: Ensure clients accept the Terms and Conditions before completing a transaction or providing the service. This ensures that the terms are legally binding from the start.
- Regular Updates: Keep your Terms and Conditions updated to reflect changes in laws, business practices, and the scope of services offered. Regular reviews ensure ongoing compliance and protection.
Key Takeaways
- Terms and conditions are vital components of a contract, and they can only take effect when the other party, such as a client, explicitly or implicitly accept them. Without a valid acceptance, the legal system does not acknowledge the existence of a valid contract that is legally binding.
- Businesses should use terms and conditions always to mitigate risks and losses while trading.
If you have any questions then please feel free to reach out to us at Debt Free and the team will be happy to help.
