Whenever you are entering into a contract, be that with another business or an individual, it is important to be aware that the law will sometimes intervene to invalidate terms, or even entire agreements, if the terms of your contract are considered to be ‘unfair’.
Consumers are subject to considerable protection when entering into contracts with businesses. The law automatically assumes that businesses and consumers have unequal bargaining power.
- Where consumers contract with businesses who use standard form terms, such as ecommerce businesses, the customer will not have had an opportunity to negotiate those terms and there is a risk that the terms may be found to be unenforceable.
- When developing business to consumer contracts for your business you need to take account of the Unfair Contract terms Act and all applicable consumer protection legislation.
- Examples of unfair terms might include provisions which mislead a consumer, which compel them to pay an unreasonable penalty, or which free you from your obligations or vary the terms of the contract.
Specialist advice should be sought to develop business-to-consumer contracts which protect your business interests and do not fall foul of the Unfair Contract Terms Act.
Contracts between businesses
In contrast, the law assumes that businesses will have equal bargaining power. This is because in theory, if an unfair contract term was put forward, businesses would have the opportunity to go elsewhere and find another party to contract with.
- However, in practice a small business does not have equal negotiating powers when compared to a large organization due to commercial expediency. A small software developer often has little bargaining power when negotiating with a big corporation.
- Although protection against unfair contract terms for businesses is not as extensive as consumer protection, the Unfair Contract Terms Act 1977 does consider some terms within a contract as automatically unfair. Other terms are only deemed fair if they are considered by a court to be reasonable.
- It remains important to consider the terms of contracts carefully to ensure that none of the terms within your contract could be considered unfair.
Specialist professional advice will give you confidence that your business contracts are enforceable and do not include unfair contract terms.