Brexit for Business – How to Adjust Your Commercial Contracts and Agreements

Solicitor and ContractStore founder Giles Dixon has some useful pointers for updating your commercial contracts in the light of the UK Brexit vote.

brexit photoOn the Monday after the Referendum vote, I was asked to draft my first Brexit clause for a substantial long term services contract between a European and UK company that was being negotiated. So, although we have not yet left the EU, the potential legal implications of our likely withdrawal are already being felt.

As we do not know what agreement might be reached with the EU it is difficult to be too specific on how business and society will be affected.

But for starters, here are some possible issues that clients may want to consider when reviewing or negotiating their contracts:

  • Customs duties and tariffs: If these are introduced on trade between the UK and other EU countries, be sure to have some wording that says how they will affect the payment terms under the contract.
  • Personnel: If your contract involves sending a team of engineers to the UK from Europe (or vice versa), what happens if new visa requirements are introduced that make this difficult to achieve? And if you already employ citizens from other EU states, how might their status be affected if there is a change in immigration law?
  • Currency: Any contract involving pricing that has a currency risk should consider wording to deal with that risk. But if the impact of Brexit sees a continuing fall in the value of sterling (already down by around 10% against the USD), an escape clause or renegotiation provision could be essential.
  • Standards: If EU quality standards diverge from those in the UK, how might this affect manufactured products or the supply of services and whose standards will apply under your contract?
  • Trade Marks: Anyone who has registered an EU trade mark has protection throughout the 28 member states. If we leave, will that EU mark still give protection in the UK?

A material adverse circumstances clause can be a helpful device to deal with issues that might arise in future but are not identified when the contract is signed. But the difficulty with such a clause is in specifying what happens if a particular event occurs. An obligation to discuss and try to resolve the problem by good faith negotiation is the type of wording sometimes used, but it does not remove the uncertainty. So, where you can, you need to have wording that says what will happen if a situation arises – e.g. if new taxes are introduced on the supply of goods to Europe, these will be added to the price and payable by the customer.

Consumer Rights Act – Unfair Contract Terms

The Consumer Rights Act 2015 introduces new rights for consumers and our previous articles have dealt with how the Act affects sale of goods, services and digital products.

Kawarau Bridge - Bungee dipping photo

You can’t escape your responsibilities by writing them away in a contract

The Act also re-states and expands the existing law concerning unfair terms in consumer contracts.

The basic requirements are that contract terms must be fair.

The law says that a term is unfair if “contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations under the contract to the detriment of the consumer.

This fairness test applies not only to terms in the contract but also to consumer notices – e.g. notices in car parks, as well as notices appearing online on a website.

All written terms in a consumer contract or in a consumer notice must be transparent – i.e. expressed in plain and intelligible language.

Any term in a consumer contract or a consumer notice attempting to limit or exclude the trader’s liability for death or personal injury resulting from negligence is unlawful and not enforceable. (So a bungee jumping company can’t get you to sign away your rights – if the bungee fails, that will still be their fault.)

Similarly any term attempting to limit or exclude the various terms implied by the Act (satisfactory quality etc.) are unfair and unenforceable.

What Is ‘Unfair’?

Schedule 2 of the Act contains 20 examples of terms that may be regarded as unfair. These include:

  • Disproportionately high charges when a consumer decides not to carry on with a contract or with services which have not been supplied
  • Terms that allow the trader to decide the subject matter after the consumer is bound by the contract
  • A term allowing the trader to fix the price after the consumer is already bound by the contract
  • A term designed to limit the trader’s liability in the event of death or personal injury of the consumer that results from some act or omission of the trader
  • A term designed to exclude or limit the consumer’s rights if the trader does not perform his obligations adequately
  • A term that allows the trader to bring the contract to an end without reasonable notice unless there are serious grounds for doing so
  • A term which has the effect of binding the consumer to terms which he has had no real opportunity of becoming acquainted with before the conclusion of the contract.

Fairness Exemption

the fairness test in consumer rights

Notices to the public such as clamping warnings are also subject to the ‘fairness test’

The test of fairness will not apply to a term in a contract that specifies the subject matter of the contract, nor will the price be subjected to a fairness test. But for the exemption to apply, the subject matter and the price must be prominent and transparent – i.e. in plain English and intelligible.

What You Need To Do

All businesses need to review their contract terms at this stage to see that they do not fall foul of the Consumer Rights Act and the updated Unfair Terms requirements incorporated in it. Although much of the existing legislation is retained, there are new provisions as well.

Resources

Consumer Rights Act: Digital Products

Digital products are now a fact of life, and new legislation is catching up

Digital products are now a fact of life, and new legislation is catching up

The new Consumer Rights law coming into force on 1st October 2015 is significant: it introduces new rights for consumers as well as consolidating a lot of existing legislation, and it applies to almost all contracts between traders and consumers. And for the first time, digital products are included specifically in the law.

These new provisions will affect everything from smartphone apps to streamed songs, movies, e-books, games, and business products such as design templates and even our own editable ready-made contracts.

Definitions

A ‘consumer’ is an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

A ‘trader’ is a person acting for purposes relating to that person’s trade, business, craft or profession and it includes public sector authorities and government departments.

Digital Content – A New Type of Product

This is the first legislation to establish standards for the supply of digital content which is defined as: “data which are produced and supplied in digital form”. (A somewhat circuitous definition, with questionable use of the word ‘data’ as a plural noun).

The law applies whether the digital content is paid for or is supplied free of charge with other goods and services which are paid for by the consumer.

Every contract for supply of digital content will now be treated as including a term that the digital content:

  • is of satisfactory quality,
  • matches its description and
  • matches any trial version that has been supplied and
  • complies with other information supplied by the trader – e,g. with regard to main characteristics, functionality and compatibility and
  • the trader has the right to supply it.

“Satisfactory quality” is the standard that a reasonable person would consider satisfactory taking account of the description, price and ‘all other relevant circumstances’ (which include any advert, labelling or public statement made by the trader, his representatives or the original producer of the digital content). The quality includes:

  • its state and condition
  • fitness for the purposes for which that kind of digital content is usually supplied
  • freedom from minor defects
  • safety
  • durability

If, before the contract is made, a consumer makes known to the trader a particular purpose for which the digital content is required, then it has to be fit for that purpose even if it is not usually supplied for that reason.

If the trader has the right to modify the digital content, then the satisfactory quality and other standards mentioned above apply also to the modifications.

Traders are required to provide a lot of pre-contract information to consumers – including price, payment, delivery, performance etc. under The Consumer Contracts (Information etc.) Regulations. All that information is now treated as a term of the contract. (See our previous article on those regulations)

Remedies where Digital Content does not Comply with these Terms

If digital content does not meet these standards, a consumer has a number of potential remedies:

  • Repair or replacement (unless this is not possible or is disproportionate compared to other remedies
  • A price reduction if (a) the trader has been asked for repair or replacement and failed to comply or (b) repair or replacement is not possible or is disproportionate. The reduction could amount to a full refund where appropriate.
  • A refund if the trader did not have the right to supply the digital content
  • A right to recover costs (up to the purchase price) incurred by the consumer as a result of the trader failing to supply all the pre-contract information required by the law
  • If the digital content causes damage to a device of the consumer or to other digital content of the consumer, the trader either has to repair the damage or pay compensation

These remedies do not prevent a consumer from claiming damages or some other remedy in court such as an order for specific performance of the contract. But recovering twice for the same loss is not allowed.

Links

  • The Consumer Rights Act can be found here.

ContractStore offers ready-made contract terms for digital products here:

 

 

Consumer Rights Act: Services

Whatever service you are providing, you will need to meet basic standards

Whatever service you are providing, you will need to meet basic standards

The new Consumer Rights law coming into force on 1st October 2015 is significant: it introduces new rights for consumers as well as consolidating a lot of existing legislation, and it applies to almost all all businesses in the UK that supply goods, services or digital products to consumers.

Definitions

A ‘consumer’ is an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

A ‘trader’ is a person acting for purposes relating to that person’s trade, business, craft or profession and it includes public sector authorities and government departments.

Services

Every contract for services includes a term, implied by law,  that:

  • the trader will exercise reasonable skill and care in providing the service
  • any information* given to the consumer about the service is included as a term in the contract if it is taken into account by the consumer when deciding to enter into the contract (unless the trader qualified he information at the time)

Where no price is specified in a contract, a term is implied that the consumer will pay a reasonable price for the service.

Where no time for performing the service is specified in the contract, the trader must perform the service within a reasonable time.

*Consumer Regulations that came into force in 2014 specify the information that a trader has to give to a consumer when entering into a contract- there are 24 separate items  and these were mentioned in the blog post we wrote at the time.

None of these implied terms can be excluded in the contract.

Remedies for a consumer where the trader is in breach of any of these implied terms may comprise:

  • repeat performance by the trader
  • a price reduction (which in some circumstances can mean a full refund)

So, if a trader has a clause in his contract limiting his liability to 10% of the contract price, that is illegal and will not be binding on the consumer.

These statutory remedies do not prevent a consumer claiming damages or seeking some other order such as specific performance but the law says the consumer cannot recover twice for the same loss.

The Consumer Rights Act can be found here.

Consumer Rights Act: Goods

Goods trade is subject to new legislation in the UK coming into force on 1 October 2015

New rights for consumers in the UK will apply from 1 October 2015

The new Consumer Rights law coming into force on 1st October 2015 is significant: it introduces new rights for consumers as well as consolidating a lot of existing legislation, and it applies to almost all contracts between traders and consumers.

Definitions

A ‘consumer’ is an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

A ‘trader’ is a person acting for purposes relating to that person’s trade, business, craft or profession and it includes public sector authorities and government departments.

‘Goods’ are ‘tangible moveable items’  – in other words, things you can handle – so they do not include software or buildings.

Selling Goods – What the Law Says

It is a legal requirement that all goods sold to a consumer are:

  • of satisfactory quality
  • match their description
  • match any sample that has been supplied
  • match any model which has been seen by the consumer (unless differences have been pointed out)

“Satisfactory quality” is the standard that a reasonable person would consider satisfactory taking account of the description, price and other relevant circumstances. The quality includes:

  • fitness for the purposes for which those goods are usually supplied
  • appearance and finish
  • freedom from minor defects
  • Safety
  • Durability

If the sale includes installation by the trader and the goods are installed incorrectly, then they do not conform to the contract.

If, before the contract is made, a consumer specifies a particular purpose for which the goods are required, then they have to be fit for that purpose even if they’re not usually supplied for that reason.

Traders are required to provide a lot of pre-contract information to consumers – including price, payment, delivery, performance etc. under The Consumer Contracts (Information etc.) Regulations. All that of information is now treated as a term of the contract. (See our previous guidance article on those regulations)

Remedies for Defective Goods

If goods do not meet these standards, a consumer has a number of potential remedies:

  • Within 30 days from delivery (or installation if this is included), reject the substandard goods and claim a full refund
  • after the 30 days the consumer can require the repair or replacement of defective goods
  • if the trader does not replace or repair defective goods at all or does so but the goods are still defective, the consumer can require either a price reduction or a final right to reject the non-conforming goods and get a refund.

Consumers should normally raise any claim within six months from delivery.

A refund must be made within 14 days of the trader agreeing that a refund is due and no fee for arranging the refund is allowed.

Whether or not the contract requires the consumer to return rejected goods, the reasonable costs of return must be borne by the trader. But there is an exception if the consumer returns them from a different place than that where they were delivered. So, for example, if a trader in London supplies goods to a consumer in Brighton and the consumer then moves to Paris, the trader only has to pay the cost of return from Brighton, not the cost from Paris.

If a consumer rejects goods more than six months after delivery, the trader is allowed to deduct from the refund an amount to take account of the time the consumer had use of the goods. (But no deduction is allowed if the goods are a motor vehicle)

The remedies do not prevent the right of a consumer to claim damages or seek some other remedy in the courts. However, the law does say that the consumer cannot make a double recovery for the same loss.

Delivery of Goods

The law (Section 28) requires a trader to deliver goods within 30 days unless another period is agreed. If delivery is not within this period the consumer can treat the contract as at an end if the consumer made it clear that delivery within that period was essential. Otherwise the consumer can demand delivery within ‘an appropriate’ period and if the trader does not meet this, the consumer can cancel.

Risk

Risk of loss or damage passes to the consumer when the goods come into his possession or they are delivered to a carrier commissioned by the consumer.

Your Terms

Using a good standard set of terms and conditions, and getting legal advice if there is anything aren’t sure about, is always good practice regardless of changes in the law. ContractStore have a range of ready made T&Cs and other documents for selling goods that are specifically designed for businesses trading goods. For example:

 

Is Your Business Ready for the new Consumer Rights Act?

The new Consumer Rights Act will come into force in October 2015

The new Consumer Rights Act will come into force in October 2015

This new law is significant: it introduces new rights for consumers as well as consolidating a lot of existing legislation, and it applies to almost all contracts between traders and consumers.

It comes into force on 1st October 2015 and affects all traders that supply goods, services or digital products to consumers.

Definitions

A ‘consumer’ is an individual acting for purposes that are wholly or mainly outside that individual’s trade, business, craft or profession.

A ‘trader’ is a person acting for purposes relating to that person’s trade, business, craft or profession and it includes public sector authorities and government departments.

Digital Products are Now Included

The law deals separately with sale of Goods, Services and (for the first time) Digital Products – what standards have to be met, what information provided, and the rights of a consumer to cancel or get compensation if the trader is not complying with the law. (This will of course affect ContractStore so we are paying especially close attention!)

It also covers Unfair Terms in contracts.

More Guidance

Over the coming month we will be publishing guidance for businesses who trade in Goods, Services, and Digital Products. You can follow this blog or sign up for our enewsletter below, to get the updates.

Get updates by email:


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Doing Business in Russia

Companies regularly consider their plans for growth of their business and one of the main possibilities for growth is expansion to new markets.  Interviews of management of different foreign companies and recent global surveys show that the overwhelming majority of such companies are considering entering the Russian market as one of their top priorities.  In general, Russia is an attractive market for foreign investors.

However, the high profit expectations which Russia offers are often coupled with suspicious attitudes towards the Russian partners and Russian legal system, which, together with political factors, often outweigh the perceived benefits of investing in Russia’s rapidly developing economy.  This article is intended to briefly address some of the concerns related to Russian business partners and the Russian legal system.  We will attempt to take inside knowledge and experience of Russian legal and business reality and analyze it from the standpoint of a foreign businessman, providing you a myth-free picture of the legal perspectives of doing business in Russia.

Trading with Russia. Image from Wikipedia

There are plenty of good trade opportunities with Russia despite many foreigners’ concerns

The Legal System

The current Russian legal system still in its infancy.  For over 70 years, until the collapse of the Soviet Union in 1991, Russia had a command economy, state controlled commerce and recognized no private ownership.  What did business look like at that time?  The State prepared a plan, which was obligatory and which already prescribed what goods could be produced, whom they could be sold to and at what price.  There was actually no place for negotiations and, consequently, no established market practice and space for development of the legal system although, even in those days, civil relations were regulated by the Civil Code of the USSR.

In 1994 the current Civil Code of the Russian Federation was adopted.  It is the main source of civil and corporate law in Russia.  There are also a number of other normative acts (Federal Laws are the main part of them) which regulate different business issues. There are many articles on the internet on the differences between the Russian legal system and common law (hence no need to name them in this short article) and probably the main one is that Russian law does not recognize precedent when interpreting provisions of the Civil Code and other Federal Laws.  However, recent developments in the Russian legal system show that more and more features of common law are being adopted.  Moreover, within the last few years Russian law has taken a big, but as yet informal, step in the direction of common law – the significance of previous court decisions and especially decisions of the higher courts has increased, so that such decisions are usually treated as binding for other Russian courts dealing with similar disputes. We believe that if this tendency continues (and we do not see any obstacles for it to happen), it will help to build confidence in the Russian system among foreign investors and Russian businessmen.

Entering the Market

The other source of problems faced by foreign investors and a lot of Russian business people which often causes misunderstandings is miscommunication.   Even today a number of Russian companies are managed by people who started their professional career in Soviet times.  Lack of background experience, education in the command economy, suspicion of their partners are some of the characteristics which make some Russian partners behave in an unpredictable manner.  Thus, if a foreign investor is planning to enter the Russian market, it can be a good idea to have someone (a manager, lawyer, whoever) who is capable of building a bridge of mutual understanding between the Russian partner and the foreign investor. And once this bridge is built, you can have confidence in your partner.

We also believe it may be useful to focus on some legal aspects of doing business in Russia: establishment of a legal presence, regulatory framework, taxation, repatriation of profits (exchange controls) and consideration of potential dispute.

Establishing a Legal Presence in Russia

Your legal presence in Russia can be established in the form of an entity  – LLC (limited liability company) or  JSC (joint stock company) or in the form of the branch or representative office.  Each form has its own advantages and disadvantages, but around 90% of foreign companies working in Russia are set up as an LLC (in some cases only an LLC or JSC will allow you to conduct business operations and get a licence if this is needed for your activities).

To register an LLC you will need to prepare a set of documents which has to be submitted to the tax office which serves the location chosen for your business.  You will also need to open a bank account and find premises for your office and verify some documents before a notary.  Registration of an LLC usually takes no more than 5-7 business days and you will then get a set of documentation confirming state registration of your business.  In general, this process is not too complicated, but, as in any country, there are some peculiarities and we recommend that you engage local lawyers to guide you through the process.

Repatriation of Profits and Exchange Controls

One important topic for a foreign investor is the possibility of repatriation of profits and the related exchange control laws.  Usually, repatriation of profits is made in a variety of ways: payments of intercompany invoices, royalties, dividends or  interest under a loan agreement – for your particular business needs tax you should contact your tax advisor.  If certain conditions are met (usually, this involves the total amount of money to be transferred) you may be required to open a special file with your bank and attach a contract between the concerned companies which serves as the justification for such money transfer. This is quite a simple procedure and usually companies do not experience any difficulties.

Licensing

If your business requires a licence (e.g. if you sell alcohol) or any other authorization (e.g. if you conduct construction activities), you will be able to apply once your legal presence is registered.  Russia has quite detailed procedures for obtaining a licence/authorization and, so long as you follow it carefully, it should usually be granted within 1-2 months. If your licence/authorization is for some reasons declined, there is a possibility to challenge this in court – the state Arbitration court.

Court System

Having mentioned the possibility of a dispute in the courts, we will very briefly focus on the Russian court system insofar as it affects commercial disputes.  This consists of state courts – known as the arbitrazhniy courts – which consider commercial disputes, an IP court for intellectual property cases established in 2013, mediation and commercial arbitration.

Usually parties to a dispute will choose between a state court (e.g. Arbitrazhniy Court of Moscow) and commercial arbitration (e.g. the International Commercial  Arbitration  Court at the RF Chamber of Commerce and Industry).  In our view, both options are fine as decision of both courts can be enforced in Russia, at the same time it is more likely that only decisions of the ICAC can be enforced overseas in countries that are signatories to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York, 1958) (the “New York Convention”). However, proceedings in a commercial arbitration court (e.g. ICAC) in general are far more expensive than in the state court.  Thus, in our view, a decision on which to choose needs to be taken on a case-by-case basis depending on the particular circumstances of each case.

Mediation, a way of resolving disputes without recourse to a judge or arbitrator, is also possible in Russia, which enacted a federal law of mediation in 2011.

Current International Sanctions

While reading this you may wonder whether these processes are affected by the current political situation, with tension and sanctions between Russia and a number of foreign states.  In general, this has of course brought some obstacles, especially in oil & gas, financing and the food industry (prohibition of import of certain food products to Russia), but even in these industries some of the obstacles can be mitigated.  And if your business is small or medium and is not connected with these spheres of activity, we do not believe that it will be affected by the current political situation.

To conclude this short introduction to business in Russia, we would like to say that the worries described above as well as others that you may read in the media, while sometimes based on real evidence, are exaggerated and business in Russia is still worth doing.  This is especially true if a foreign investor in a Russian business undertakes intensive preparatory work so as to protect itself from the unique Russian problems and risks described above.  The thousands of foreign companies that come to Russia every year and the numbers of newly opened Russian businesses are quickly realizing that most of the problems are manageable.

Author Profile

Nikolay is a Russian in-house lawyer living in Moscow. He has been dealing with foreign business since 2005 and has participated in a number of projects which have included the full-scale legal support and management of start-up projects in Russia. Nikolay has experience in the organization and management of businesses in Russia and believes that his core goal as a lawyer is to bridge the gap between the reality in Russia and foreign perceptions, by providing high quality legal services and business consulting. Nikolay is responsible for the Russian section of the ContractStore –  see them at contractstore.com/russiancontracts

Are your Website Terms of Business ready for the new Consumer Regulations?

New regulations concerning the sale of goods and services to consumers come into effect in June. The great majority of businesses selling goods or services online as well as door step and other “off-premises” sales will be affected.

The Consumer Contracts (Information, Cancellation and Additional Payments) Regulations 2013 come into effect on 13 June 2014. They replace the existing the Distance Selling Regulations and the Doorstep Regulations.

Although many of the existing regulations will continue, they have been updated in various ways and there are a number of changes that you will need to make to your terms and conditions.

So, be prepared to update your Terms of Business for online sales on your website as well as for off-premises sales. And remember, these Regulations apply to the sale of services as well as goods.

ContractStore’s Terms & Conditions for online sale of goods  (document A179) have been updated and are available to buy and download from our website.

Here are some of the key points in the new Regulations:

 Information     Lots of information must be given by the trader to the consumer before the contract is made.  This pre-contract information will be treated as information forming part of the contract. If this information is not provided, the consumer may not be bound by the contract.

Schedule 2 of the regulations details 24 separate bits of information to be provided. These include:

  • the main characteristics of the goods or services
  • the identity of the trader and his address and contact details
  • if the trader is selling on behalf of someone else, the address and identity of that other trader is also needed
  • the total price of the goods or services including taxes or, if this cannot be calculated in advance, an explanation of how it will be calculated
  • where applicable, any additional delivery charges or  other costs
  • where the contract is open ended or the consumer is paying a subscription, the total monthly or other regular payments
  • arrangements for payment, delivery, performance and timing
  • where there is a cancellation right, details concerning this
  • when applicable, the terms of any after sales service
  • the duration of the contract and if this is open ended, the conditions for terminating and the minimum contract period, if there is one.

Making the Contract.   In the case of online business, the information items in italics above are the minimum that the trader must provide ‘in a clear and prominent manner’ before the consumer places an order.

Also the website must have wording that ensures the consumer, when placing an order, explicitly acknowledges the obligation to pay for the goods or services being ordered.

Unless the trader complies with these requirements, the consumer is not bound by the contract..

Once an order is placed, the trader must confirm the contract within a reasonable time and before the delivery of goods or start of services.  email confirmation is acceptable.

Sales by Phone.  Anyone making a phone call to get a contract must at the beginning of the conversation identify the trader’s identity, the purpose of the call and the identity of any third party on whose behalf the call is being made.   

Delivery.     The contract will automatically contain an implied term requiring retailers to deliver goods and services without delay and in any event within 30 days from the contract date

 Risk.   Until goods come into the physical possession of the consumer, risk of loss or damage remains with the trader. This will not apply if the consumer arranges transportation with a carrier who has not been recommended by the trader.

Cancellation Rights.  Consumers will have 14 days in which to cancel a contract. This period replaces the existing period of 7 working days.  The 14 day period starts the day after the contract is made in the case of a service contract or contract for the supply of digital content online.

In the case of goods, the cancellation period ends at the end of 14 days after the day on which the last of the goods came into the physical possession of the consumer (or someone identified by him – e.g. the person to whom a gift is being delivered).

The Regulations contain a model cancellation form and consumers should be given the option to use this, but any clear statement of cancellation will be effective provided it is given within the 14 day period.

If the trader does not spell out the consumer’s cancellation rights, then the consumer has the right to cancel the contract at any time within 12 months. It is also an offence, punishable by a fine.

Refunds.   If the consumer cancels the contract and returns the goods, the trader must make a full refund within 14 days.  This includes the basic cost of delivery if the consumer paid for the goods to be delivered to him. Where there is no delivery of goods, the refund must be within 14 days after the trader is informed of the cancellation.

If the value of the goods has been reduced by the consumer’s handling, the trader can deduct an appropriate amount from the refund.

Return of Goods.  The trader is responsible for collecting the goods if:

  • he has offered to collect them or
  • the goods were delivered to the consumer’s home and they cannot, by their nature, normally be returned by post.

In other cases, the consumer is responsible for sending the goods back to the address specified by the trader. The consumer is responsible for the cost of returning goods unless either the trader has agreed to meet those costs or he failed to tell the consumer about the consumer bearing the cost in the information provided at the beginning.

Services in Cancellation Period.   The trader must not start services within the cancellation period unless he is asked to by the consumer. If services are then performed in full, the consumer’s cancellation right is lost. If services are partly performed and the consumer cancels within the 14 day period, the trader is entitled to payment on a proportionate basis for those services.

Supply of Digital Content.    Where there is a contract online for the supply of digital content, the trader should not supply the content before the end of the cancellation period unless the consumer has given express consent for early delivery and the consumer has acknowledged that the right to cancel the contract will not apply.  So, if you are selling downloads of music or maps, you need wording to ensure that the consumer agree to waive his cancellation rights as he goes through the buying process on your website.

Helpline Charges.    If it trader operates a helpline, this must not involve the consumer in phone charges above the basic rate. If it does, the trader is obliged to refund the extra cost to the consumer.

 Excluded Contracts.   These Regulations do not apply to certain contracts including: financial services and insurance; leases of property and contracts for the sale of land; contracts for construction of new buildings or conversion of existing buildings.

 Exclusion of Cancellation Rights.   The right to cancel a contract does not apply in some circumstances including:

  • goods that are tailor-made for the consumer or personalised in some other way;
  • goods that are liable to deteriorate or expire rapidly, such as fresh food;
  • goods or services where the price is dependent on fluctuations in the financial markets;
  • newspapers and magazines;
  • sealed goods which, after delivery, are unsealed and are no longer suitable for  return due to health or hygiene reasons – e.g. underwear;
  • audio or computer software that is supplied sealed and then unsealed after delivery;
  • goods that become inseparably mixed after delivery – e.g. sand mixed with cement.

For ContractStore’s template Terms of Business for the Sale of Goods Online click here

For more detailed information, the Regulations are available online and are quite easy to read.  Also there is Guidance published by the Department of Business Innovation & Skills.

 

 

What You Need to Know about Distributor & Reseller Agreements

 If you want to increase sales in a new area whether in your own country or overseas, there are two principal methods, apart from setting up a branch of your business there.  One is to appoint an agent who will promote your goods and find buyers for you.  The other is to appoint a distributor or reseller who will buy your products and then resell them in his territory.

 Once you have decided on the territory that you want to cover, you will need to find a suitable candidate to resell your products.  This is not an easy task and it certainly needs to be undertaken with care, and plenty of due diligence. There is advice on how to go about this in Exporting Made Easy , a book that I have co-written and it is available online at www.exporting-made-easy.com

Once you have selected your distributor, be sure to have a written agreement with him setting out the terms of the deal which allows you to bring the arrangement to an end if things do not work out satisfactorily. You should also get local legal advice before signing an agreement because there could be local laws which you need to take into account – for example, it might be necessary for a distributor to be owned by nationals of the country.

 Set out below are some of the main issues that you need to consider and to cover in your distributorship agreement.

Specify the products and the territory

if you have more than one product line, it may be sensible to restrict the agreement to one or two lines initially to see how things go. You can always add more products later. As for the territory, this needs to be clearly defined. 

Exclusive or Non-exclusive

Are you going to appoint the distributor on an exclusive or non-exclusive basis – i.e.will he be the only person in that territory who is entitled to sell your products. Even if you agree to an exclusive arrangement, you might want to reserve some existing customers to deal with direct, in which case cover this in the agreement.

Duration

What is the initial term of the agreement?   Make it long enough to give the distributor time to get established and into the market with your products, but no longer. It can then be renewable yearly if things work out.

Orders, Prices and Payment

The agreement should set out the arrangements for ordering products as well as prices and payment terms.   Depending on the nature of your business, it can be useful to have forward estimates of orders so that you will have sufficient stock to meet the distributor’s requirements.

It is usual to specify that each order which is accepted constitutes a separate contract between the two parties and that the sales are made on your standard terms and conditions.  You might want to attach a copy of these to the agreement.

There will probably be a schedule setting out the prices of the various products and this could include some trade discounts depending on volume etc.

As for payment terms, you do not want any more exposure than is necessary. Payment prior to shipment is one possibility and another is to have the distributor set up a confirmed irrevocable letter of credit.

It is not normally lawful to fix the resale prices that your distributor will charge so there is always a risk that he will offer your products at a lower price than another distributor.

  Sales Targets. 

You should certainly include some agreed sales targets in the agreement because this allows you to monitor the distributor’s performance. Coupled with the sales targets should be a provision that not only allows you to revise the targets but also entitles you to bring the contract to an end if, for example, minimum targets are not achieved for two or three consecutive quarters.

 General Obligations

It is sensible to identify what marketing material and technical data you will provide and if training of the distributor’s sales staff is needed.  You may also want to have terms that require the distributor to have a marketing budget, to report on sales on a regular basis etc.

 Intellectual property

Make sure that you protect your copyright, patents and trademarks. Your distributor should only be allowed to use them while the agreement remains in place and it is sensible to have a clause which requires him to notify you and to act to protect your interests if, for example, counterfeit goods appear in the market in his territory.

Termination

Always include a clause that allows you to bring the contract to an end if the distributor fails to meet his targets or commits some other breach of contract or becomes insolvent.   Terminating an agreement of this type in some countries might  lead to substantial compensation claims so you need to take legal advice before finalising the wording.

Non-competition and Confidentiality

You may want a clause that prevents the distributor from selling any products that compete with your own both during the agreement and, perhaps, for a period after it has come to an end. In addition, you will probably want to be sure that the terms of the agreement are kept confidential.

Dispute resolution and Governing Law

While you might want English law to apply and any disputes to be dealt with in the English courts, if the distributor is based overseas and has no assets in this country, getting a judgement and then enforcing it against him might prove rather difficult.  An international arbitration clause could well be preferable and we have some free information on our website concerning this topic.

Our template for appointing a distributor can be found here http://www.contractstore.com/A117-distributorship-agreement

What You Need to Know about Leasing a Shop

Guest post by Judith Long

Taking on a business lease can be one of the most significant financial commitments that your business will make.  It is important for a tenant to be aware of the key provisions of its business lease so that it can check what the respective rights and obligations of the business and the landlord are and be aware of the procedures to follow in case there is a problem.

What’s in a Shop Lease?

The lease will normally include the following:

  • Details of the premises.
  • The term of the lease – this will usually be 3 or 5 years or a multiple thereof.
  • Whether the lease is renewable at the end of the term.
  • Whether lease can be assigned during the term together with any conditions.
  • Whether part of the premises can be sublet.
  • The amount of the rent, including details of any rent reviews.
  • The amount and the terms of any rent deposit.
  • Whether a personal guarantee is required.
  • Details of any works that will be the landlord’s responsibility during the tenancy.
  • Details of any service or other charges that may be payable to the landlord during the tenancy.
  • Details of any works that will be the tenant’s responsibility during the tenancy.
  • Details of remedial work that will be required at the termination of the lease.
Check your shop lease before signing to avoid nasty surprises later on!

Check your shop lease before signing, to avoid nasty surprises later on

Things to Consider when Leasing a Shop

The matters set out below are the sort of things you may need to think carefully about and to negotiate with the landlord before agreeing to the lease.

a.      Check the length of the lease.  The tenant should know when the term will end and whether it can be terminated earlier by either party.  The right to terminate early is usually referred to as a break clause.  Tenant break clauses are commonly linked to rent reviews so that, if the rent is likely to be unacceptable to the tenant, it can terminate the lease and limit its financial responsibilities.

b.      Check the position on security of tenure.  Business tenants generally have the right to renew their lease at the end of the contractual term (subject to certain exceptions).  Note, however, that the lease can be contracted out of the security of tenure provisions, in which case there will be no right of renewal at the end of the term and the property must be vacated.

c.      If the lease provides for a rent review, consider whether this should be a simple inflation-linked increase or linked to comparable premises in the open market.

d.      Are you required to give a rent deposit or a personal guarantee?  If so, think carefully about the impact on cash flow and personal liability as a guarantor.  Many start-up businesses prefer to take a lease in the name of a company with a cash rent deposit.

e.      If giving a rent deposit, consider whether it should be released if you prove to be a good tenant and your accounts show that your business is on a sound footing.

f.       The lease is likely to contain a number of restrictions in connection with assignment and sub-letting.  These provisions should be carefully considered.

g.      If you intend to carry out work to the premises, it is best to agree these at the outset and document them as part of the initial deal or you may need to obtain landlord’s permission incurring additional costs and delays.

h.      Even if the premises aren’t in a good state of repair at the beginning of the lease, the repair clause might require you to hand them back to the landlord in a good state of repair. Therefore it is wise to ask your landlord for your repairing obligations to be limited to the current state of the premises recorded in a detailed Schedule of Condition supported by photographs.

i.       Find out what your business rates liability will be.  Check whether the premises are separately rated.

j.       If the premises are part of a larger building, check the service charge accounts for at least the previous 3 years and try to negotiate a cap on the service charge for at least part of the term.

k.      Check whether the premises have their own meters and mains supplies or are these located in a part of the building you can’t reach?

l.       Would you require parking facilities or 24-hour access?

Please note that the above are just some of the matters which you need to consider before leasing a shop and this guide is not intended to be exhaustive.  Landlord and tenant law is a complex area of law and specialist legal advice is always recommended before entering into a lease whether you are a landlord or a tenant.

 

About Judith Long

Judith Long, property lawyer

Judith Long, commercial and property lawyer

Judith is a solicitor with her own practice and her specialist skills include all aspects of commercial property law and business law. With nearly 30 years experience in the law, she has worked in industry as well as private practice.

Her practice was formed in 1997 and she provides specialist business legal services to public and private institutions and individuals.  For more information see www.judithmlongsolicitors.co.uk