Unfair contract terms
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As of 30 March 2019, all EU law will cease to apply to the UK, unless a ratified withdrawal agreement establishes another date, or the European Council and the UK decide unanimously to extend the two-year negotiation period. For more information about the legal repercussions for businesses:
EU law sets out some fairness and transparency requirements for contracts you sign with consumers.
Which contract terms are concerned?
The information below only concerns selling to consumers who buy outside their professional sphere. It does not apply if you sell to other businesses.
EU requirements apply to any contract term which has not been individually negotiated with the consumer, such as usual standard contract terms drafted in advance. Both the main subject-matter of your contract and the value-for-money aspects are specifically excluded.
Take note that if you want to rely on the fact that the contract has been individually negotiated, you will need to prove this.
Contracts must be fair
The standard contract terms used in the course of your business, whether they are called 'terms and conditions' or are part of a detailed contract, have to be fair.
Under EU law, standard contract terms must not:
- be contrary to the requirement of good faith;
- disadvantage consumers (in terms of rights & obligations), in relation to sellers/suppliers.
You must act in good faith, taking the consumers' legitimate interests into account, by dealing fairly and equitably with them.
Unfair contract terms are not binding
If specific terms in a contract are unfair, they are not binding on consumers and you may not rely on them, even if the consumer has signed the contract.
Provided the unfair term is not an essential element of the contract, the rest of the contract (but not the unfair term) will continue to bind you and the consumer.
Contracts must be transparent
Contract terms must be drafted in plain, understandable language. Contract terms must not only be grammatically clear but the consumer must be able to understand their economic consequences.
Be aware that any ambiguities will be interpreted in the consumer's favour.
Examples of potentially unfair terms
Besides the general requirements of 'good faith' and 'balance', the EU rules contain a list of specific contract terms that may be judged unfair.
Here are some situations where contract terms may be judged unfair under EU rules:
1. Liability when a consumer dies or is injured
Terms which exclude/limit your liability if a consumer dies or is injured because of an act/omission on your part.
2. Compensation if you don't deliver
Terms which inappropriately exclude/limit consumers' rights to compensation if you don't perform your side of the contract.
3. Get-out clause in your favour
Terms which allow you to get out of providing a service just because it doesn't suit you, but which still bind the consumer.
4. One-sided compensation for cancellation
Terms which allow you to keep pre-payments if the consumer cancels the contract without allowing for equivalent compensation to the consumer where you (the trader) cancel.
5. Excessive compensation
Terms which require a consumer who doesn't fulfil an obligation to pay an unreasonably high amount of compensation.
6. One-sided cancellation
Terms which allow you to dissolve a contract unilaterally but where the consumer does not enjoy the same right.
7. Cancellation at short notice
Terms which authorise you to terminate a contract with no fixed end-date at short notice, except where absolutely justified.
8. Automatic extensions of fixed duration contracts
Terms whereby a consumer has to notify an intention to end the contract but where the deadline for doing so is unreasonably early.
9. Hidden terms
Terms which bind consumers even though they could not have easily been aware of them before signing the contract.
10. One-sided changes to the contract
Terms which allow you to alter a contract unilaterally unless the contract states a valid reason for doing so.
11. One-sided changes to a product or service
Terms which allow you to make changes to the product or service to be provided unilaterally and without a valid reason.
12. Price variations
Terms where you can fix or increase the final price on delivery — without giving consumers the option of cancelling the contract — if the amount is much higher than initially agreed.
13. One-sided interpretation of the contract
Terms where only you have the right to interpret any clause of the contract and to decide whether the product or service complies with the contract.
14. Not honouring statements made by your staff
Terms under which you may try to avoid commitments made by your staff or where such commitments are subject to other conditions.
15. One-sided compliance with obligations
Terms obliging consumers to fulfil all of their obligations where you don't have to abide by yours.
16. Transfers of contracts to other traders under less favourable conditions
Terms which allow you to transfer the contract without the consumer's consent and which may give the consumer a worse deal.
17. Limited rights to legal action
Terms which restrict how and where consumers can take legal action and obliging them to provide proof which is the responsibility of the other party to the contract.
Details on national rules
Please remember that EU rules on unfair contract terms set a minimum standard which can be strengthened further or expanded through national laws.
For detailed information on applicable rules please seek advice from the Enterprise Europe Network in your country.
Consumer Law Ready
Consumer Law Ready is an EU-wide programme, offering free training courses in consumer law for micro businesses and SMEs. You can apply to attend a training course in your country to ensure that your SME is Consumer Law Ready.
You may prefer to learn at your own speed, sign up to access to the educational material. You can then complete an e-test and validate your learning with a certificate.
Check out the Consumer Law Ready portal to discover how you can sign up.