If you own or manage a business that uses commercial contracts as part of its operations, then we hope that before implementing those contracts you sought the advice of commercial lawyers. If you did not, then there is the possibility that because the contracts were not checked by a legal expert that they could include unfair terms.
Unfair contract terms are those terms and clauses within a contract that could be deemed to be unfair at best, potentially void, and almost undoubtedly unenforceable if you were to refer to or rely on them should any legal dispute arises between your business and a customer or client. Note that it is a two-way street, which means you could enter a contract in which the other party has included unfair contract terms.
Unfair Contract Terms Explained
Whilst most people will understand what ‘unfair’ means in a general sense, when it comes to how it is used within commercial law and specifically in relation to commercial contracts, the definitions are far narrower. Commercial legislation states that a contract term is regarded as unfair when it would create any of the following scenarios:
- A Significant Disparity In The Rights And Obligations Of The Respective Parties As To Create An Imbalance
In effect, this means that any terms which remove or significantly reduce one party’s rights while at the same time minimising the obligations of the other party, would be deemed unfair. An example is a company that supplies and installs heating systems removing any obligation it had concerning a warranty and placing all obligations for fixing it on its customers.
- The Term Is Not Necessary To Protect The Party Who The Term Seeks To Benefit
This can seem confusing but what it essentially means is that, where the party’s legitimate interests are already protected, there is no reasonable basis for including contract terms that either replicate that protection or magnify it. This can include terms that state the courts are the means of resolving disputes routes where simpler and less costly means exist.
- There Would Be A Financial Detriment Or Other Detriment To One Party If The Term Is Relied Upon
In other words, if the unfair term is acted upon it would create an unnecessary financial cost to one party or there would be other negative consequences. A simple example is where the unfair terms state that the customer is not entitled to a refund regardless of the circumstances in which the goods are proven to be faulty or not fit for purpose.
It should be noted that if a term is deemed unfair in a specific contract, it does not mean that it is unfair in all circumstances and all other contracts. This is why each party’s rights and obligations are considered in each case, and only as they apply to the contract in question.
Avoiding Unfair Contract Terms In Your Contracts
The effect of being found to have an unfair term in your contracts with your customers means that those terms are deemed null and void, and thus have no effect. In most cases, the rest of the contract will be valid, but if you were relying on unfair terms, even if doing so unknowingly, it could severely compromise your business and its profitability.
More alarmingly, if any negative publicity arises from being found to have used unfair contract terms, it can damage your business’s reputation. There is one clear solution to avoiding any of this, and that is to ask your commercial lawyers to at least check any contracts you plan to use, or better still, request that they create them for you so that you can be sure all terms in your contract are valid, fair, and reasonable.