Terms of business are one of those documents that don’t seem all that important until a problem occurs. There is always a new deal to be brokered, a recruitment crisis to resolve, or an employee grievance to nip in the bud, that takes precedence over checking if your terms of business remain fit for purpose.
In this article, our commercial solicitors look at why and when you need to review your terms of business to best protect your business.
Contents:
Why does your business need terms of business?
You may be one of those exceptionally lucky companies where both your commercial deals and consumer contracts are problem free. If the reality is that, like most businesses, things sometimes go wrong at your end, or some customers try and take you for a ride, then you need terms of business to provide certainty, clarity, and compliance and to minimise the risk of commercial disputes and consumer complaints.
Whilst you can contract verbally or by exchange of email, it isn’t recommended and certainly not unless the communications make it clear that any contractual negotiations will be subject to your terms of business.
Whose terms of business apply?
If your terms of business are referred to in a signed contract then your standard terms should be incorporated and apply. Whilst you can argue that your terms of business apply if the other contracting party was made aware of them before the contract was signed, you don’t want to take that risk or create uncertainty.
Whilst you may think that your terms of business are fit for purpose, the other party may prefer their own terms to form part of the contract. Depending on negotiating power and the importance of the contract to you, that may result in acceptance of the other party’s terms or revisions to your terms of business that both of you are happy to accept.
Negotiating terms can result in different terms for various contracting parties, rather than use of one standardised terms. Companies can weigh up whether use of different terms is cost effective because of the additional time spent in contract negotiation and management as against the potential for scaling up through repeat business with a new customer or, for example, the brand kudos through association with a chosen luxury retailer.
Use of more than one set of terms of business makes it all the more important that your business effectively manages the differing terms of business by allocating contract managers for the key contracts and keeping the contracts under review. For information on contract management have a look at our article Contract lifecycle management: what you should be doing
When do you need to update your terms of business?
Terms of business are one of the essential documents you need, whether you are a start-up, SME, or scale-up. Sometimes you will need to have more than one standard terms of business, for example, ones to cover business clients, international deals or consumers. For guidance on other essential business start-up documents have a read of our article 9 types of legal documents you need for start-up success.
Terms of business should not be set in stone. Changes may be justified for a variety of reasons, including:
- Technology developments
- Offering changes
- Changes to the law
Technology developments and amended terms of business
Technological changes may mean your business is able to work smarter and you need to amend your terms of business to reflect working practices. For example:
- If notices have to be sent by post this adds to your costs but it is also slow. If the accepted work practice has moved to giving notice and orders by email then your terms of business need to reflect the reality of your business practices
- If the terms of business say a contract must be signed to be valid then, with technological advances, you may want to amend your terms to specify that contracts can be signed electronically and state the type of signature mechanism that is satisfactory. For more information on the benefits and complexities of electronic signatures have a read of our article Electronic signatures: Can you digitally sign a contract?
Offering changes and revised terms
It is essential that your offering keeps up to date with your competitors. Commercial lawyers are sometimes told that current terms of business say that free delivery is provided, or there is a modest cost that isn’t linked to the size of the delivered goods or the distance travelled, because that is what the business has always done. Times and offerings should change if competitors no longer offer free delivery or they are properly costing their delivery charges and passing them on to their customers.
There are many other ways that your offering may change. For example, if you manufacture goods, the specification may change because of regulatory changes, or the need to ensure your goods meet both UK and EU specifications, or because you are withdrawing some ranges to streamline production. The other obvious example of an offering change is a price review and increase. This can be achieved through a price escalation clause in your associated contract, or through your terms of business. Take a look at our detailed article on price escalation: Commercial contract price increase clauses | Price escalation.
Changes to the law
Changes to terms of business may be necessary because of changes to the law, regulations or caselaw. Where contracts have an international element, it is important to keep an eye on changes in all relevant jurisdictions.
In the UK, B2B and B2C contracts are impacted by the following key legislation and regulations:
- The Sale of Goods Act 1979
- The Unfair Contract Terms Act 1977
- The Modern Slavery Act 2015
- The Bribery Act 2010
- The Equality Act 2010
- GDPR regulations
Accordingly, any changes in the terms of business need to be crosschecked for any changes in the legislation or developments in caselaw.
Can you change your terms for current clients?
Whether you can change your terms of business for current clients depends on your contractual arrangements with them, namely:
- Do you have a contract supplemented by terms of business referred to in the contract – if so, what does the contract say about varying the terms of business or the contract? Alternatively, what does the termination clause say as the other possibility is ending the current contract and then renegotiating a new contract to incorporate your revised terms of business
- If your contractual relationship is purely based on the terms of business, what do the terms of business say about variation? If each order is a separate purchase, then there is no reason why you can't change your terms of business as it is just a question of weighing up whether the changes, and any potential fall out with consumers, is worth the change in the terms. Most terms of business include a proviso to say that the terms can be changed. If there is an ongoing contractual relationship it is best to give notice to every client, customer or supplier to say that new terms will apply from a specified date and sending a copy of the new terms. Commercial solicitors say that that as a matter of good practice, and to minimise the risk of contract disputes, it is best to get clients to sign a copy of the revised terms so there is evidence that the new terms were received and accepted
How to protect your business when changing your terms & conditions
Changing terms of business isn’t the most exciting of tasks and it is therefore one of those jobs that can get left as whether you are in the tech, retail or manufacturing sector there is normally something else that demands attention. However, you should make the time to review your terms of business as sometimes small tweaks to your terms can produce the same level of additional profit as investing in new tech or machinery.
Here are our commercial solicitors tips on how to protect your business when changing your terms of business:
- Take a multi-disciplinary approach – a good commercial lawyer knows the law inside out but they don’t know your business and what works for you and your staff. That’s why it is best to get feedback from your procurement or supply team or accounts department on what aspects of the terms work for them and which generate red tape or complaints and could be modified, with no risk to the business, but will improve company efficiency and customer satisfaction
- Think ahead – if you are planning to expand outside the UK, or anticipate having to change your product range or specifications, ensure that the new terms incorporate all the changes you need. For example, if you are intending to operate outside the UK or receive supplies from outside the UK, how will that impact on delivery times and carriage and custom costs? It is preferable to think through all potential developments because if you keep bombarding customers with new terms of business it is off putting and you are more likely to run the risk of a dispute over which terms of business apply to a particular transaction
- Keep up with technology- if you are investing the time in revised terms, do you also need to check if your tech practices are fit for purpose? For example, can customers electronically sign the terms to signify acceptance?
- Price escalation – with talk of recessions and rising costs of materials and petrol, any revisions to terms of business should carefully consider your pricing structure. If your supply and overhead costs are rising rapidly, are your current terms of business sufficiently versatile to pass on your increased overhead to your customers? If not, you should consider how your terms or contract require amendment so you are not exposed to bearing the brunt of price hikes without being able to pass them on
- Take a joined up approach – if you are revising your terms, it is important that your sales literature, price list or website are consistent with the new terms and refer to the right version of the terms. Likewise, it is vital that any corresponding contract is consistent with the new terms and refers to the latest ones
- Don’t hide new terms or key clauses – when you are altering terms the temptation is to just slide them through and hope that the customers won't notice the changes. That isn’t good business practice as although you may think you have ‘got away with it’, not bringing changes to the attention of the other party to a contract risks a breakdown in relations with the contracting party, a commercial contract dispute, and in some scenarios the court finding the new terms are not incorporated into the contract as reasonable notice was not given
- Limit liability – your terms of business should be a means of protecting your business from exposure to liability and risk. Changing the terms of business may need to be undertaken in association with a review of your insurance cover. For more information on limiting liability in commercial contracts have a look at Limiting the liability of your business
- Remember the law – whilst it is tempting to do all you can to protect your business and to have as draconian and as protective terms of business as possible, the reality is that approach can be counterproductive as business to business contracts are still subject to some provisions in The Sale Of Goods Act and Unfair Contract Terms Act 1977 or GDPR regulations
- Keep it simple – terms of business should be an easy read and avoid legalese where possible. Take a look at our article Plain language contract drafting | Simplifying commercial contracts for more information on why use of plain language can benefit your business contracts
For a more in depth look at the importance of commercial contract reviews have a read of:
- Why you should regularly update your commercial contracts
- Contract lifecycle management: what you should be doing
