Why use standard terms?
Using standard terms can eliminate the need to negotiate the ‘small print’ for each contract; instead you can concentrate on agreeing the unique commercial aspects. The terms should be driven by the commercial reality of your business and tailor-made to reflect your business.
So what are the key provisions in standard terms and how can you can integrate them into your business?
These will depend upon your business but you should always consider the following key commercial points:
Description, quantity and quality of goods and services
Delivery information (time scales, costs, late delivery, liability during transit, insurance, failure to accept delivery)
Price (including VAT, packaging, delivery, insurance)
Payment (time for payment, encouraging prompt payment, interest on late payment)
Risk (limitations and exclusions of liability)
Transfer of title to goods
Standard terms are designed to leave little room for the other party to negotiate. However, they are subject to rights automatically incorporated into contracts by law. For example:
You must not exclude liability for fraud or death or personal injury caused by negligence or defective products
You must confirm that any goods you sell belong to you, or you have the right to sell the goods, and they are free from any genuine claim by another
There are more implied terms which are primarily aimed at protecting weaker parties (particularly consumers). Some implied terms (excluding the above) can be excluded from your contract but this depends upon whether you are contracting with a consumer or business and whether it would be fair to exclude them. Where you trade online you will need to comply with additional laws and you should always seek legal advice before applying your terms to online trading.
General “boiler plate” terms are important yet can be overlooked as unnecessary legal jargon. Some key general terms are:
Variation: This is essential in order for you to adapt your contracts to fit with your changing business needs.
Entire agreement: This prevents parties from relying upon something which has been said but not expressly set out in the contract. It provides certainty because the terms are in one place.
Third parties: Third parties can have rights in law to sue under a contract even though they are not a party to it. It is important to exclude this right to prevent unexpected liabilities owed to third parties.
Non-Waiver: This prevents any waiver of your rights unless done in a specific way and so you can acknowledge breaches of the contract (e. g. late payment) without accidentally forfeiting other rights (e. g. to charge interest).
Force majeure: This excuses a party from having to perform obligations or duties under a contract where it is unable to do so because of circumstances outside of that party’s control.
You must draw special attention to terms which are unusual or onerous because onerous terms in an unsigned document (such as standard terms) may be held to be unenforceable unless reasonable steps are taken to bring them to the other party’s attention before the contract is made.
This will depend on the transaction but terms to watch out for include where you exclude or limit your liability and:
Penalty clauses: You cannot penalise the other party for doing, or failing to do, something unless there is sufficient commercial justification such as costs or loss which would otherwise be incurred by you.
Charging interest on late payments: If you do not specify an interest rate in your terms then a statutory interest rate will apply to late payments. The law on late payments has recently been amended.
Including standard terms in your contract
You must ensure that your standard terms are brought to the attention of the other party before the contract has been formed. Standard terms should be included, or made reference to, in your business literature including catalogues, quotations, order forms, delivery notes, invoices and your website.
Where the terms are printed on the reverse of a document, the front must state that the terms are printed on the reverse and that they form part of the contract. Equally you must cross reference the terms on the face of any document which varies the terms.
Changing your standard terms
You may vary standard terms for a single contract by referencing the variation on your order form or other document but at some point you may want to change your terms altogether and how you do this depends upon whether you are changing them for a new or existing contract.
Changing existing contracts: This will depend on what your standard terms say. You can send the new terms to every party explaining that if they continue to trade with you after notification of those changes they will be considered to have accepted them and they will apply going forward but where consent is required, or the contract is valuable, you may need, or want, to obtain written acceptance.
New contracts: Where you want to change your standard terms for a new contract with a party with whom you have a history of contracting care must be taken to flag any variations, particularly where they are disadvantageous to the other party.
This is a general guide and you should always take specific advice. If you would like to find out more about creating, or revising your standard terms, please contact us. As a general rule of thumb they should be reviewed as a minimum, every 3-5 years.