Reviewing and negotiating the standard terms and conditions of another business can be challenging. Often there simply is not the time or desire to raise and resolve even material issues.
But even in constrained circumstances, there are some important points worth checking before you sign and some areas that may be open to discussion. In this article, we explore a number of the key terms usually found in standard terms and conditions and how they might be negotiated.
Why are standard terms and conditions challenging to negotiate?
A party will often present its standard terms and conditions (standard Ts and Cs) as a fait accompli – a done deal – and will usually try to avoid getting into a negotiation on them. They are invariably printed in small close typed paragraphs.
When a lawyer or negotiator is presented with the standard Ts and Cs of another business, it is often late in the deal or commercial process to which they will apply. The people involved in the commercial discussions will not want the commercial transaction or “go live date” to be delayed because of last minute discussion on what they will think of as being just legal issues. Often, the request to the lawyer or reviewer in these circumstances is – “just let us know whether there are any real showstoppers”.
If you do raise points on the terms and conditions, they can be met with (somewhat unconvincing) responses such as:
● “these are our standard Ts and Cs and can’t be changed”
● “this is a market standard clause and non-negotiable”
● “that’s not how we would actually act in practice but we just need this wording for legal protection”
This type of response can act as a self-perpetuating justification to continue to include unreasonable and one-sided provisions in Ts and Cs.
So, what terms should be checked and may be open for negotiation?
The basics
It may sound basic, but make sure that the basic commercial details are correctly recorded and filled in, including:
â—Ź correct full corporate names of parties
â—Ź adequate and accurate description of goods, services and deliverables
â—Ź price and any applicable discounts
â—Ź additional or specific terms agreed
Term
For licences or services contracts in particular:
â—Ź what is the initial period of the agreement
â—Ź is the initial period fixed or can either or both parties terminate on notice
â—Ź if terminable by notice:
o what is the notice period
o can either party terminate by notice or just one party
â—Ź is the term subject to renewal/extension
â—Ź if so, how is the term renewed:
o if automatic, what period of notice must be given for the automatic renewal not to occur
o if not automatic, what period of notice to renew/extend must be given prior to expiry of the current term
â—Ź are any terms changed for the renewed term, eg automatic price increases
Financial
Look out for financial and payment terms, including:
â—Ź deposits and upfront payments
â—Ź requirement to pay by direct debit
â—Ź payment terms and periods
● payment triggers – if dependent on milestones or satisfactory implementation, who determines whether the milestone has been achieved or the implementation is satisfactory
â—Ź how can pricing be changed during the term, including:
o price increases by the supplier on notice – can the recipient object or terminate the agreement
o annual price increases by reference to inflation
o price increases due to increase in third party supplier costs, employment costs (including minimum wage increases) and utility costs
â—Ź interest for late payment
Performance/service levels
Often a supplier will assure the client that there are tough minimum performance service levels that will apply but then:
â—Ź set the performance levels at a level which are difficult not to achieve
â—Ź make it difficult for the client or customer to make a claim for service level failure and claim a refund or other compensation, for example by including a short time window in which the client must make its claim, failing which the right to claim falls away
â—Ź set the refund at a level which means that it is not really fair compensation for the service level failure
To counter this:
â—Ź check the performance levels and whether they are fair and proportionate
â—Ź work out what levels of compensation/refund may be due for non-achievement and whether they are truly compensatory
â—Ź see what events or circumstances will not count towards the performance level testing, for example downtime for training or routine maintenance or the failure of a third party to supply services or utilities
â—Ź check the process and timing for raising a claim to ensure that it is fair and requires the supplier to provide necessary information to check performance against the stated levels
Intellectual property
Depending on the nature of the arrangement:
â—Ź which party should own the intellectual property which is the subject of the commercial transaction
â—Ź should the client receive an assignment or a licence of bespoke intellectual property which is developed and delivered under the agreement
● what happens on termination of the agreement – is it appropriate for the client to continue to be able to use any intellectual property (especially if it has paid for the development of a bespoke solution)
Where the subject-matter of the transaction is a licence of IP rights, it would be usual for the licensor to indemnify the licensee for claims from any third party for infringement of the third party’s IP.
Warranties and limitations on liability
A seller of goods or supplier of services will often aim to limit:
â—Ź the nature and scope of warranties which it gives in respect of its own performance
â—Ź its liability for breach of warranty or otherwise under the agreement
Whilst it may be appropriate for there to be reasonable limitations of this nature in the Ts and Ts, check that these are not too one-sided, including:
â—Ź make sure that there are meaningful warranties and undertakings from the seller or supplier
â—Ź watch out for monetary limitations which, for example, limit aggregate liability to an unreasonably low amount considering the subject-matter and value of the agreement
â—Ź avoid agreeing to time periods during which any claim must be made and which are shorter than the limitation period on bringing claims which would apply generally
Restrictions
In services arrangements, it has become an increasing trend for the supplier to include a restriction on the client soliciting or employing the supplier’s staff, both during the term of the engagement and for a period after it has ended. This may be appropriate (though it is not always the case) but check for:
● the employees to which the restriction relates – it should only apply to the personnel who have been involved in providing the services
● the period of restriction – a period of 6 months post-termination is typical, a period of more than 12 months would be excessive
â—Ź liquidated damages clauses, which purport to say that a breach of the non-solicitation or non-employment restriction will give rise to an automatic claim for a specified monetary amount, eg the 12 months salary of the affected employee
â—Ź the inclusion of usual exceptions to the restriction, eg for an individual who responds to a general job advertisement or campaign and is not specifically targeted
Termination
What events will give rise to a right to terminate the agreement. This will depend on the nature of the arrangement, but issues to look out for include:
● termination for breach: include termination for “material” breach only and a period for the defaulting party to remedy the breach (eg 14-21 days)
â—Ź mutual termination events: are the termination events mutual or one-way only? Should they apply equally to both parties?
● change of control, management or ownership: beware of clauses which entitle one party to terminate due to the other party’s change of control, management or ownership
Assignment
For the client or customer, is the agreement assignable? If not, it will be difficult to transfer the benefit of the agreement on a business sale – consider including freedom to assign to the purchaser of all or material part of its business and undertaking.
Dispute mechanism
How will disputes be resolved under the agreement? Compulsory mediation before bringing legal action is becoming increasingly prevalent, and can be a sensible way to resolved disputes before legal proceedings are commenced.
If an arbitration clause is included, consider whether this is appropriate and sensible, including the applicable arbitral rules, the stated seat of the arbitration and the numbers of arbitrators.
Governing law
Check that the stated governing law is suitable for the subject matter of the transaction and the place where the parties are based. Having to take action under a foreign law and in a foreign jurisdiction will increase the costs of any legal action
Paper Rock standard terms and conditions templates
Our selection of template Ts and Cs are all aimed at providing a solution which, whilst legally robust for the party presenting them as their standard terms and conditions, achieves a reasonably balanced position between the parties.
Each template is written in plain English and is accompanied by clear explanatory guidance on the document and its use. For more details, visit Terms and Conditions.
PaperRock offers affordable, legal document templates, written by experienced and expert lawyers, trusted by businesses across the UK and elsewhere. No hidden charges or trial sign-ups to complete your document. Subscribe or buy, the choice is yours.
