Buyers’ terms and conditions and unfair contract terms

All businesses routinely enter into contracts with other businesses to buy their goods or services. For example, when buying a new computer system, a training package or office cleaning services.

When you buy goods and services for your business, you face many of the issues that private consumers do – like ensuring their quality and getting any problems put right. But as a business, you don’t necessarily have the same buying rights and protection as individual consumers.

This guide explains the rights you have as a business purchaser of goods and services. It doesn’t cover your rights or obligations when selling goods or services – either to other businesses or consumers.

It also outlines what you need to be aware of in the terms and conditions of your contracts and how you can improve the deal.

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Your rights when acquiring goods and services

In general, when your business purchases goods or services from another business, you have the same implied rights as a consumer would have when buying from you – if there is no contract to the contrary.

However, while these basic rights can’t be excluded from contracts with consumers, they can be excluded from contracts between businesses. So if you’re buying goods and services from another business, you should make sure that the terms and conditions of the contract don’t put you at a disadvantage.

For further information about what can and can’t be excluded from your contracts, see the page in this guide on the Unfair Contract Terms Act.

In the case of goods, unless otherwise stated, you are entitled to demand that your purchases:

• correspond with the seller’s description
• are of satisfactory quality – safe, in working order and free of defects
• are fit for purpose – capable of doing what they’re meant to do

These rights are outlined in the Sale of Goods Act 1979. For further information about this legislation, see our guide on the Sale of Goods Act.

You can read more on the Sales of Goods Act on the Legislation website [opens in a new window].

Similar implied contractual rights also apply if you’re buying services. You can expect services you buy from other businesses to be carried out:

• with reasonable care and skill
• within a reasonable time
• for a reasonable charge

It’s important to note that these rights don’t just apply to purchases – they also cover transactions such as hiring, hire purchase and part exchange.

For further information, find your local Trading Standards office on the Trading Standards Institute (TSI) website- Opens in a new window.

Protection under the Consumer Credit Act

If you operate as a sole trader – within a partnership or as an unincorporated association – you are also protected by the Consumer Credit Act, under which you count as an ‘individual’. The Act extends consumer credit regulation to business lending where the amount of the credit or hire agreement is £25,000 or less.

The Act does not apply to limited companies, limited liability partnerships or individuals of ‘high net worth’ (as long as this is agreed in writing beforehand). To find out about the Consumer Credit Act, see our guide on consumer credit

In general, credit agreements between businesses – ie where credit is provided to limited companies – do not fall under the scope of the regulations. You should seek legal advice before entering into a credit agreement with another business.

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Examine the terms and conditions when acquiring goods and services

Make sure you read the terms and conditions thoroughly before you enter into a contract to obtain goods or services from another business. The principle of buyer beware applies – as the rights that apply automatically in the case of consumer contracts can be excluded from contracts between businesses.

Check whether there are any terms or conditions in the contract that appear to be too heavily weighted in favour of the business supplying the goods or services. Look in particular for what are known as exclusion clauses – these are clauses which the seller might use to remove certain liabilities from the contract.

For more information about the use of exclusion clauses in business-to-business contracts, see the page in this guide on the Unfair Contract Terms Act.

If you’re unhappy with any terms or conditions in a contract a supplier has drawn up, don’t agree to them without first checking your position. You might want to seek legal advice or contact your local Trading Standards office. You can find your local Trading Standards office on the Trading Standards Institute (TSI) website- Opens in a new window.

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The Unfair Contract Terms Act

Transactions between businesses are covered by the Unfair Contract Terms Act 1977 (UCTA). In general, businesses are assumed to be free to enter into whatever contracts they agree between themselves – so you should make sure you’re happy with the contracts you agree with other businesses.

However, the UCTA places a number of restrictions on the contract terms businesses can agree to. Specifically, it lays down rules for the ways in which vendor businesses can use exclusion clauses to limit liability in certain areas. The business selling the goods or services isn’t allowed to exclude liability for:

• death or injury – under any circumstances
• losses caused by negligence – unless to do so is ‘reasonable’
• defective or poor quality goods – unless to do so is ‘reasonable’

The test of reasonableness

The UCTA doesn’t define precisely what is meant by ‘reasonable’, but courts will usually take into account:

• the information available to both parties when the contract was drawn up
• whether the contract was negotiated or in standard form
• whether the buyer had the bargaining power to negotiate better terms

You don’t have the same protection as individual consumers when you make purchases exclusively for the use of your business. A consumer contract excluding liability for defective goods would be automatically invalid. But when buying as a business it’s up to you to check in advance what terms and conditions you’re agreeing to.

At present, there are separate rules dealing with unfair consumer contracts – the Unfair Terms in Consumer Contracts Regulations.

Sole traders count as businesses rather than consumers for any purchases they make in connection with their business activities. However, if the trader offers you credit terms up to £25,000, you receive the same protection as individuals under the Consumer Credit Act 1974 for this element of the contract. For more information see our guide on consumer credit.

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Use terms and conditions to get more from your supplier

Don’t be afraid to take the initiative when negotiating contracts with your suppliers. You might find you can have terms and conditions amended or added – improving your position significantly. As in all contractual situations, the extent to which you can insist on changes will depend on your bargaining power.

Always read the contract carefully and make sure that it sets out the most basic aspects of the transaction. You should make sure that the contract reflects what has been agreed in terms of:

• quantities
• price
• payment terms
• delivery schedule
• defective goods

If you have the bargaining power to do so, negotiate clauses that improve the transaction from your perspective. For example, a contract for the purchase of an IT system might have clauses added to include a period of free on-site servicing, or initial training for key staff in your business.

You should also insist on the removal of exclusion clauses limiting the seller’s liability for defective goods or for losses due to negligence. For more information about exclusion clauses, see the page in this guide on the Unfair Contract Terms Act.

For further information about negotiating a contract, see our guide on how to negotiate the right deal with suppliers.

You should consider seeking legal advice when drawing up important contracts. You can search for a solicitor on the Law Society website- Opens in a new window.

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Remedies for breach of contract

Remember some rights that can’t be excluded from consumer contracts can be excluded from business-to-business contracts. For example, being supplied with defective goods may not be a breach of contract if an exclusion clause limiting your supplier’s liability in this area had been included.

However, you might be able to challenge the exclusion clause on the grounds that it was unreasonable under the Unfair Contract Terms Act. For more information about exclusion clauses, see the page in this guide on the Unfair Contract Terms Act.

If your supplier’s liability is not limited by reasonable exclusion clauses, you may be entitled to reject them under the Sale of Goods Act and recover any money you have paid. You would need to reject the goods within a reasonable time after delivery and at least one of the following must apply:

• the goods aren’t fit for purpose
• the goods are of unsatisfactory quality
• the goods don’t match the seller’s description

Similar remedies are available when buying services. If services aren’t carried out with reasonable skill, you’re entitled to ask for the work to be redone at no extra cost. Or, if your supplier won’t do this, you’re entitled to ask another supplier to put the work right and then claim the cost from the original supplier.

For more advice, see the page in this guide on your rights when acquiring goods and services.

Where a price has been agreed as part of the contract, you aren’t obliged to pay any more. And where a deadline for carrying out the service has been agreed but not met, you are entitled to compensation for any foreseeable losses you may suffer as a result.

If contractual problems arise, you should clarify your position with your legal adviser. You can search for a solicitor on the Law Society website- Opens in a new window.

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Terms and conditions for IT and online contracts

There are a number of specific contractual issues you need to be aware of when buying IT services or completing online contracts.

Contracts for IT services

A number of IT services have important intellectual property implications. When buying services such as IT consultancy, web design and website hosting, it’s important that contracts are drawn up clearly to ensure you keep any intellectual property rights that might benefit your business.

For example:

• if a domain name is registered on your behalf by a third party – eg an internet service provider – make sure it’s registered in your name and not under the third party
• if you use a professional to design your website – make sure any intellectual property in the design is held by you
• if you use an IT consultancy to build a proprietary software package – you should either take ownership of the package or pay a lower price if the developer retains ownership

For further information about intellectual property, see our guide on protecting intellectual property.

You may need to incorporate other issues in your contracts for IT services, such as regular training and updates. For more information see our guide on how to choose and manage your IT supplier.

Online contracts

Make sure that you understand from the terms and conditions exactly when the online contract will have been concluded. Usually this won’t be when your order is placed, but when you receive an email from the supplier confirming it.

Unless you agree otherwise with your online suppliers, they must make it clear to you the steps involved in completing the online contract and the point at which the contract will be concluded.

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