Unfair contract terms regulations can create significant problems for contracting parties by limiting their rights and putting them in a disadvantaged position. 3 min read updated on September 19, 2022
Unfair contract terms regulations can create significant problems for contracting parties by limiting their rights and putting them in a disadvantaged position. These regulations may apply to many aspects of a contract, from payment to cancellation. However, businesses and consumers can take certain measures to stay compliant while ensuring that their rights are protected.
What Are Unfair Contract Terms Regulations?
In a consumer contract or notice, a term is considered unfair if it results in a significant imbalance in the contracting parties' rights, detriment to consumers, and a situation contrary to good faith. According to the Consumer Rights Act (CRA), some terms are automatically regarded as unfair or blacklisted, while others are potentially unfair or grey-listed.
The Competition and Markets Authority (CMA) has recently published a series of guidance notes on unfair contract terms. Such guides complement previously published guidance notes and provide valuable advice for small businesses. They cover a wide range of issues in a contract, including:
- Advance payments, deposits, and cancellations.
- Excessive charges and unfair sanctions.
- Contract cancellation.
- Responsibility when things go wrong.
- Amendment of contractual terms.
- Subscriptions and automatic rollover.
- Other potentially unfair terms.
Advance Payments and Deposits
In general, deposits in themselves are not unfair, but the way businesses handle deposits when their customers cancel can be unfair. If a customer makes a substantial deposit, refusing to refund the deposit regardless of the reason for canceling may be considered an unfair practice.
Excessive Charges and Unfair Sanctions
Any term that imposes disproportionately high or excessive charges for contract breach or cancellation is likely to be considered unfair. However, a customer may also be liable for the financial loss a business incurs due to the breach, but the amount must be reasonable in relation to the actual loss. A business needs to be upfront about charges, explaining how they are determined and when they should be paid.
Contract Cancellation
In a long-term contract, not allowing the customer to cancel or requiring him or her to provide notification of his or her cancellation too far in advance may be regarded as unfair. Unfair contract terms pertaining to cancellation not only apply to the cancellation rights of a customer but also those of a business.
When reviewing its cancellation rights, a business should consider what it is offering its customers and how it can be potentially affected by any cancellation. If a business needs to cancel a contract as a result of a product recall issue, it may have the right to cancel if it refunds its customers. Nonetheless, canceling a contract without a good reason may be deemed unfair, especially if it can have a significant effect on the customer.
Responsibility When Things Go Wrong
According to the CRA, consumers can benefit from certain standards enshrined as statutory rights, such as products being fit for purpose and of satisfactory quality. Any term that attempts to exclude these rights or liability for personal injury or death as a result of a business' wrongful acts will automatically be considered unenforceable. It is also not uncommon for businesses to exclude liability for things that can potentially go wrong, but they only have the right to do so if it is not unfair.
Amendment of Contractual Terms
Blanket rights to amend the terms of a contract may be considered unfair. This may involve amending specific terms such as the price, delivery, or description of the product, but it may also include the right to amend terms at any time without permission from the customer.
Subscriptions and Automatic Rollover
A business that offers subscription service or other long-term rolling type of agreements, such as insurance contracts or mobile phone contracts, should clarify how subscriptions should be renewed, offer renewal reminders, and enable its customers to cancel their subscriptions without paying cancellation fees or giving cancelation notices far in advance.
Other Potentially Unfair Terms
The CMA has also listed several potentially unfair provisions, including:
- Terms permitting a business to determine disputes.
- Terms preventing customers to file claims in courts.
- Terms stating that a business will not be responsible for its sales representatives' statements.
- Terms imposing excessive requirements or burdens on customers.
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