Partner Debbie Brett, in our Corporate & Commercial team, explains the terms that cannot be added to consumer contracts.
With costs rising, many businesses may be considering how to protect themselves, including through more robust terms and conditions. However, if you are a business with consumers as customers this may have some tricky considerations.
The Consumer Rights Act 2015 (“CRA”) sets provisions for what can, and cannot, be added to consumer contracts. In this blog, we explain the different types of clauses that businesses will need to be weary of.
What is a ‘consumer’?
The CRA is only applicable to contracts with consumers. The CRA defines a “consumer” as: “an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft, or profession”. There is a separate legal regime which applies to Business-to-Business contracts.
Unfair terms
It is a historic principle of English law that two contracting parties should be able to agree to whatever terms they wish. Much legislation in recent years has changed this and introduced the concept of ‘unfair terms’. As explained above, the CRA sets out the position regarding contracts between businesses (referred to as “traders”) and consumers.
The CRA gives a clear definition of what is meant by “unfair”. It states that a contract term is unfair if it causes “a significant imbalance” in the parties’ rights and obligations, to the detriment of the consumer. The rationale is to ensure that traders do not take unfair advantage of consumers, who may not be familiar with contract terms.
When determining whether a term is unfair, there are two factors which need to be considered. These are:
- the nature of the contract; and
- the circumstances present at the time of the agreement.
Therefore, a court may perceive the same term differently in separate contracts depending on the context of the parties agreeing to it.
Which terms may be unfair?
The CRA provides an indicative and non-exhaustive list of terms which are potentially unfair. Some examples include:
- A term which obligates the consumer to pay a disproportionately high sum in compensation in circumstances where the consumer decides to conclude a contract.
- A term which allows the trader to dissolve the contract where the same option is not available to the consumer.
- A term which allows the trader to retain the sums paid for services not yet supplied when it is the trader who is dissolving the contract.
The CRA does stipulate that there are some terms which are not unfair. These include any term which specifies the main purpose of the contract, and a term which states the price of the services or goods. These terms can escape being unfair on the proviso that they are transparent and prominent.
A contract term is “transparent” if it is expressed in plain and intelligible language and (if in a written contract) is legible. A term is “prominent” if it is brought to the consumer’s attention in such a way that the average consumer would be aware of it. The “average consumer” is a person who is reasonably well-informed, observant, and circumspect.
Why should you be concerned if a term is unfair?
The CRA states that if a term is found to be “unfair” it is no longer binding on the consumer. It also stipulates that a consumer can rely on the term if they so choose to do so.
This could be a problem for businesses because it means that certain contractual protections may not be obtainable. Therefore, contracts may not be as advantageous as they seem.
It may be tempting, in the current economic climate, to protect your financial position by introducing overtly advantageous terms. However, these terms may not be enforceable, and it may be sensible to reconsider the wording and effect of such terms.
What should businesses do?
If you run a business, it may be prudent to:
- Carefully consider any proposed new terms considering the provisions of the CRA and ensure that they do not provide you with an unfair advantage.
- Carefully consider your current terms and conditions to identify any, which may, be deemed “unfair”.
- Carefully consider your customer base to ensure that your terms and conditions are not onerous to any customer or client.
- Contact us to discuss any terms that you may be concerned about, or are looking to introduce, as there may be a fairer way to achieve your goal without falling foul of consumer rights.
If you are a business and you wish to introduce new terms and conditions or require your contracts to be reviewed, Our Corporate & Commercial team will be delighted to assist you.
For further information or advice, please visit www.blandy.co.uk.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
