Consumer contracts: how they work and your customers’ rights
Are you familiar with the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013? If not, you need to be. These regulations exist to protect both businesses and the consumers they serve. Failure to understand these rules or apply them could lead to breaches that have financial repercussions and which damage your brand’s reputation. Before we look at these in detail in our next blogs, there are some general concepts about contracts that we wanted to explain….
What is a consumer contract?
A consumer contract legally binds a business to a consumer by way of an agreement that’s consolidated in writing or verbally in relation to a product or service - which could be virtual (for example, a subscription to a streaming platform) or physical (i.e. a laptop bought in-store).
A lesser-known type is the silent contract whereby a contract is formed without the need to speak. If you’ve ever used a self-service checkout, this is an example of a silent contract in action.
Consumer contracts, therefore, apply to all businesses that sell products or services - whether intangible or physical.
What is an invitation to treat?
Goods and services are displayed in a range of ways - on shelves or in front windows in retail outlets, and in brochures or on websites. In each of these examples, the customer is being invited to buy (even though a representative isn’t there in person to sell to them).
The customer, of course, reserves the right to accept the offer or flat out refuse it. The significance of this process though - which is known as ‘an invitation to treat’ - is that consumers cannot insist the product or service is sold to them.
This might sound odd but the process protects businesses in cases where they might have made a mistake - by mispricing the item or service for example.
In short, an invitation to treat is not a consumer contract. It’s a non-binding offer that can be withdrawn by the vendor in the event of a mistake.
The elements of a contract
Contracts are only legally binding when certain criteria are met and as follows.
Making an offer
An offer occurs when a consumer:
● Takes an item off a shelf in a shop and takes it to a checkout station
● Adds an item to their basket when shopping via a website
● Gets in touch with a business to place an order
● Receives a quote for a service
Accepting the offer
Until a transaction occurs, no legally binding contract is formed between consumer and vendor. The purchase could be abandoned at checkout, for example.
Examples of consumers accepting an offer include:
Handing over cash or paying by card at a checkout
The business sending an electronic receipt to their consumer following an online order
Products being scanned at a self-service station or run through a manned tilling system
A payment being accepted for an order via a website or brochure
Confirmation of an order or dispatch note
Consideration and intention
The consumer - when scanning items at checkout or placing an online order - is making a promise to pay the vendor in exchange for the product or service on offer. The money is, therefore, the ‘consideration.’
As a business, your ‘consideration’ is the product or service.
Both consumer and business must understand - and agree to be bound by - the terms and conditions formed by the contract which is actualised at the point of purchase.
This means that both parties need to be aware of the terms they are agreeing to, and these cannot be changed after the contract is made, unless agreed by both parties.
Legal capacity
A contract cannot be legal if the consumer is mentally unfit when making the purchase, underage, or in a state of inebriation or on drugs at the time.
If you deal with customers who might be classed as ‘vulnerable’ you should take extra care when negotiating with them.
Can a business withdraw a contract?
Yes, your business can refuse to honour a consumer contract. But you must be certain of your legal grounds because the consumer could claim you misled them. This could lead to breach of contract, civil action or accusations of unfair trading.
The importance of contractual terms
Contractual terms aren’t always written. They can be verbal too. But the latter example could make proving what was or wasn’t agreed to difficult later on in the event of a dispute.
Where do terms appear on consumer contracts?
● On a dedicated page on your website
● On the back page of a brochure
● On the final page of the contract
There could appear anywhere, including on products themselves or in any communication with consumers, it’s important to remember that all of this will form part of the contract - whether it is in your T&Cs or not!
Wherever the terms appear, they must be easily accessible and not hidden away or in the small print.
What are the different types of contract terms?
Terms that appear on all consumer contracts are ‘standard.’ Some terms - for example, where you agree on a special price with a consumer - are referred to as ‘express.’
Regardless of what you sell, certain terms are automatically built into consumer contracts to ensure goods and services match the description advertised, are safe to use, and are of sufficient quality. All descriptions given to products are treated as terms.
Unfair Terms
You cannot include terms that are unfair in your contracts (some of the rules also apply to B2B contracts).
In the UK, the restriction of unfair terms in consumer contracts is primarily governed by the Consumer Rights Act 2015 which ensures that contract terms and notices are fair and transparent, preventing businesses from creating terms that could give them an unfair advantage over consumers. Terms must not be weighted against the consumer and should be written in clear, understandable language. The Competition and Markets Authority provides guidance here. You could face legal action from regulators and consumers also have the right to challenge unfair terms in court.
Information you must provide to consumers
Before a contract can be made, you have a duty to provide certain information to the consumer concerning the services, goods, or digital content you’re selling to them.
Failure to provide this information could leave you in a vulnerable situation - with them accusing you of breaching the contract and seeking financial redress.
Distance sales
Distance selling describes a situation where a business sells a product or service remotely - by phone or text, mail order, or via a smart television, website or social media.
If you sell online check out our Business Compliance Guide
Off-premises sales
There are a few types of off-premises contracts but essentially, they cover situations where you are face to face with a consumer, but you are not on your business premises. This includes when you are at a consumer's house or workplace, or in a public place such as the street or a shopping centre (unless that’s where your regular business place is, or if you’re at a one-off event somewhere else like a hotel or other facility where you’ve invited consumers.
On-premises sales
All other types of contracts are classed as on-premises, so this includes sales from shops and other premises, but also situations where you might not be in your business premises, but no contract is agreed at the time, for example if you visit a consumer’s home and leave a quote which they can then think about and get back to you when they are ready. Although this seems strange, the reasoning behind the additional protection for consumers for off-premises sales is that they are under pressure to make a decision there and then.
The legislation firstly sets out the information which must be provided before the contract is agreed and then gives consumers cancellation rights for both distance and off-premises contracts.
In our next blogs we go into more detail about information requirements and cancellation rights for different types of contracts.
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We work with start-ups and established businesses - so contact us to discuss your consumer contracts concerns or anything else compliance or regulation related. Or you can download our full guide to selling online,
