Why Do Companies Continuously Update Their Terms & Conditions? – Lawyer Monthly | Legal News Magazine

Why Do Companies Continuously Update Their Terms & Conditions?

Here Lawyer Monthly benefits from an exclusive analysis by Dr Shola Mos-Shogbamimu of Richard Nelson LLP.  Dr Shola Mos-Shogbamimu is a dual qualified New York Attorney and Solicitor of England & Wales with broad corporate and commercial expertise in the financial services industry with key focus on corporate investment banking and asset management (including addressing cross border risks).

Terms and Conditions are the bread and butter of every business. Most businesses document their terms and conditions as formal written contracts when engaging with customers to avoid the pitfalls of relying on oral agreements. What most people don’t understand is that terms and conditions are living documents that form the bedrock of the business relationship with customers based on trust and fairness; and the contractual basis which legally protect companies. They also determine the rights and obligations of the company and customer who are the parties to the contract. More importantly to a Company is that contracts are legally enforceable in court.

As neither businesses nor laws are static, an agreement drafted for a business today may not be the agreement it needs tomorrow so terms and conditions must evolve and vary with the growth and development of the business it represents. When renewing a company’s terms and conditions, consideration must be given to the following:

  • Any oral/verbal arrangements in place with the customer
  • Legislation and regulation pertaining to the provision of its services and compulsory disclosures to customers
  • Industry practices and professional best practice rules
  • Implied terms of contract
  • Company policies

In the current heightened regulatory and economic environment, it is imperative for companies to renew their terms and conditions regularly and in a timely manner to ensure it reflects current (i) operational feasibility; (ii) business arrangements with the customer; and (iii) legislative and regulatory standards in place for such business.

Terms and conditions enhance business and are the appropriate framework for legal protections should the need arise.

  1. Potential Risk Exposure

An appropriate legal framework for services provided to a customer is good practice in providing in-depth coverage of the services and managing the expectations of both the customer and the Company. In the absence of a regularly reviewed and updated terms and conditions, a Company runs a potential legal, regulatory, financial and operational risk. Here are several reasons why a company must continuously update its terms and conditions:

  • It keeps the Company compliant with law and regulation. It also offers protection against contractual risk.
  • It minimises and manages dispute risk with customers. It ensures there are alternative methods to mitigate litigation risk such as through arbitration or mediation for dispute resolution.
  • It protects the Company’s intellectual property and commercially sensitive information.
  • It limits the Company’s liability within an appropriate framework, reduces potential risk of unlimited liability and reputational risk thereby securing the valuable assets of the company.
  • It sets expectations between the Company and its customers thereby creating certainty. Such certainty secures a valuable working relationship with customers ensuring repeat business from them.
  1. What qualifies as terms and conditions?

Terms and Conditions are also known as Contracts, Terms of Business, Terms of Service Agreement or Terms of Use agreement.  Where changes to an agreement is required, both parties must mutually agree to such changes. Terms that set out the rules, rights and obligations of both parties in order to provide and pay for a service qualify as terms and conditions for the purpose of being a binding contract between the Company and customer.

Under English law, the Consumer Rights Act 2015 requires businesses to offer fair terms to their customers. T&Cs can only protect a company to the extent the terms are fair. A contractual term can be unfair if it puts the customer at a disadvantage. In the event a term is deemed to be unfair, the company runs the potential risk of that term not being legally binding on the customer. For terms to be fair under the Consumer Rights Act, they must be transparent and intelligible for customers to make informed choices. Terms that could significantly impact the informed choices of customers must be brought to their attention.

Examples of unfair terms include:

  1. a penalty clause for breach of contract;
  2. a charge clause to be solely determined by the Company in the event the customer fails to comply with the terms of the contract;
  3. imposing threatening or financial sanctions;
  4. use of legal jargon that customers are unlikely to understand;
  5. excluding liability for a fault that the Company caused;
  6. using rights that are narrower than the statutory rights the customer is entitled to;
  7. terms that bind the customer to hidden terms; and
  8. long notice periods which inevitably last indefinitely.
  1. Online terms and conditions

The ability to engage in legally binding service arrangements online has revolutionised the way business is globally conducted. For services provided online, legally binding contracts are created between the online user and online service provider when the user clicks on the button ‘I Agree’ or ‘I Accept’. This creates a legally enforceable contract. Often companies incorporate their online terms and conditions into written agreements, invoices, purchase orders and the like in order to maintain consistency and uniformity of contractual language.

The formal requirements to establish a contract under English law (offer, acceptance) remain applicable including the requirement of consideration – payment or benefit in kind for the services being provided.

  1. How to Successfully Change Terms and Conditions

Companies must comply with contract law when renewing their terms and conditions.  This is generally changed by mutual consent of both parties unless change made is mandated by law or regulation. As a matter of best practice, the following will assist:

  • Notify customers in a timely manner and in accordance with the notice requirements set out in the original terms and conditions;
  • Conspicuously set out where commercial, legal or regulatory required amendments have been made and provide an explanation if it is not self-explanatory;
  • Give ample notice for customer to revert with clarification, rejection or acceptance of amendment;
  • Set out clear position on options available to the customer in the event the change is not acceptable.
  • Maintain records of all changes to both online and written terms and conditions, including when they were entered into in order to prove what terms and conditions were in effect at a particular time.

Disclaimer: The content of this article is intended to be educational and not specific legal advice. It is not a substitute for professional legal advice nor is it a solicitation to offer legal advice.

1 Comment
  1. Mark McNamara says

    Hello, When anyone purchases something from the internet and receives their T&Cs with their receipt etc .. then for example 2 or 6 months or even 2 years later, if the company has updated their T&Cs online, would the original T&Cs override the new updated online T&Cs. For example if there were to be any kind of legal action taking place through the County Courts which set would be used to rely upon.

    Thank you.

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