Terms of Service - Consumers
When should you use a Terms of Service?
Terms of service should be used when providing services to consumers (i.e. individuals acting for non-business purposes). The terms will apply to all services provided by your company to its customers. It is possible to agree amendments to the terms on a case by case basis but if you generally have to negotiate the legal terms on which you supply services with your customers, you should consider using a services agreement instead. As consumers generally do not expect (or want) to negotiate the terms on which they will receive services, it is much more common to use terms of service (rather than a services agreement) when contracting with consumers.
Why is a Terms of Service important and why should you use a Terms of Service?
By adopting a general set of terms of service the company avoids having to agree contractual terms with each customer individually. This not only saves time and money on legal fees but also creates a smoother sale process.
The terms of service will cover a number of key legal areas including:
- the maximum liability of the service provider;
- how to terminate or cancel the services and what happens when the services are cancelled; and
- ownership of intellectual property created as a result of, or used in connection with, the supply of services.
Additionally, the terms can be used to provide customers with important information such as:
- how to contact your company;
- how to submit a complaint;
- the consumer’s rights under UK consumer protection law; and
- how the customer must pay for the services.
What are the common pitfalls of a Terms of Service?
There are a number of consumer protection regulations that must be complied with when providing services to consumers. These do not apply when providing services to businesses. It is therefore essential that you do not use the same terms of service for consumers as you use for businesses.
Under consumer protection regulation, all terms in consumer contracts must be transparent. Transparency goes beyond the language in which the terms are written (although all terms should be expressed in plain and intelligible language) - it also applies to how the terms are presented. The customer should be given a genuine opportunity to review the terms before making a purchase and the terms should be structured in a logical way with important terms given appropriate prominence. Satisfying these legal requirements is therefore achieved both through processes, such as clearly presenting the terms to the customers before they purchase the services, and through legal drafting, which can be used to draw the customer’s attention to particular terms. Failure to make terms transparent risks the terms being deemed unfair. Further, if a term is poorly drafted such that it is ambiguous, the term will be interpreted in the way that is most favourable to the customer.
Another common mistake is for companies to take advantage of the fact that consumers rarely review terms of service by including terms that are overly favourable to the company. Such terms, if they are not included in good faith and cause a significant imbalance in the rights of the parties to the detriment of the consumer, will be considered unfair. To avoid this, the terms must be reasonably balanced and actively take the legitimate interests of the customer into account. Further, they should not place the consumer in a legal position that is less favourable than that ordinarily provided for by the law. If the term is held to be unfair, the term will not be legally binding on the customer. Depending on the term, this could also result in the entire agreement being invalidated.
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