Consumer Contracts – How to Get Them Right
Chris Owen is a self-confessed ‘moaner’. And he is good at it. The PR executive told The Sun newspaper that he raked in over £1,000 from kicking up a stink about everything from poor service to his food being served incorrectly1.
Business owners dread people like Mr Owen, and rightfully so. Since the introduction of the Consumer Rights Act 2015, power has shifted heavily into customers’ hands. If you’re a business that generally deals only with other businesses, you may think that this is irrelevant to you. Think again! If an individual purchases goods or services from you not in a business capacity, the more stringent regime will apply to that transaction.
The best way to protect your interests is to have contracts in place to deal with consumer purchases as they arise, ensuring that the way your product or service works, is delivered and paid for is agreed upfront.
A Brief Guide to Consumer Rights
Consumer rights are nothing new. The term, ‘Baker’s Dozen’ evolved from medieval laws designed to prevent bakers from selling underweight bread. However, in 2014 and 2015, two pieces of legislation really shook up consumer law, namely, The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (which came into force in 2014), and the Consumer Rights Act itself. In addition, traders must also be mindful of the Sale of Goods Act 1979. Although many sections of this statute were repealed and replaced by the Consumer Rights Act 2015, part of the 1979 Act continues to apply to transactions between businesses and consumers.
Let’s deal with these separately.
The Consumer Rights Act 2015
The Consumer Rights Act 2015 states that if a customer purchases an item that is faulty, they can return it within 30 days and will be entitled to a full refund. If a defective item is returned more than thirty days after purchase, the customer is entitled to a replacement or to have the item repaired free of charge.
After six months a customer may still have the right to ask for a repair or a replacement. But as a retailer, you will be permitted to deduct some money for the use the customer has had out of the goods.
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013
The Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 provide even greater protection for consumers. This regulation governs contracts made between businesses who trade online and their customers. One of the key provisions is that customers have a right to return any items bought online within 14 days without having to provide a reason, in exchange for a full refund.
The Sale of Goods Act 1979
The Sales of Goods Act 1979 came into force on 1 January 1980 and applies to contracts for the sale of goods made on or after 1 January 1894 (with retrospective effect).
The Sale of Goods Act 1979 contains provisions governing:
- how contracts relating to the sale of goods are formed, including matters relating to implied terms and price
- the performance of a consumer contract, including delivery, the duties of buyers and sellers, acceptance and the right to reject goods
- the rights of sellers over goods which have not been paid for
- actions relating to breach of contract
Drafting Clear Service Agreements
The number one principle to remember when drafting a Service Agreement or Customer Contract is this: In most circumstances, you cannot contract out of consumer protection legislation
However, you can set out clear expectations surrounding the performance of the product or service you are selling. In addition, you can set down how and when the product or service will be delivered, how and when payment is to be made and whether a deposit is required.
Consumer contracts typically include many of the following provisions:
- A detailed specification of the product or service. For example, if a customer wishes to be supplied with two dozen red roses every week, simply stating the service agreement provides for ‘flowers’ to be delivered is not adequate.
- All details concerning the price of the goods and methods of payment, whether VAT is included, whether payment is to be made in a lump sum or in instalments, the timing of payment and consequences for breaches of payment terms.
- How and when the goods will be delivered.
- Indemnities and warranties.
- Reservation of title (ROT) or Romalpa clauses. The aim of a retention of title clause is to reserve title in the goods to the seller until the price is paid in full, even though the goods have been delivered to the buyer. This provides protection should the buyer become insolvent.
- What insurance is provided to cover the goods.
- Remedies for breach of contract.
- Force majeure provisions – these provisions provide an excuse to either party if they cannot perform some or all of their contractual obligations due to circumstances beyond their control. Typical examples include, Acts of God, war, terrorism, industrial action, fire, flood or drought.
- Relevant ‘boilerplate’ clauses such as the legal jurisdiction which will govern the contract if a dispute arises and the rights of third parties affected by the agreement.
However, all terms have to be drafted carefully to ensure they don’t fall foul of the consumer rights legislation. If they do, and are challenged in court, the agreement won’t give you anywhere near the level of protection you think it does!
Will a professionally drafted service agreement offer complete protection from customer disputes and goods being rejected? Of course not. But it will minimise the occurrence of such resource-wasting activity. And, should you encounter someone like Mr Owen, you will have a written document to refer to, protecting your interests.
Technical Terms provides in-depth legal advice on drafting and negotiating commercial contracts. If you require further information to ensure your agreements protect your interests properly, please contact us on 07985 146111.