New contract law a minefield for sellers

New legislation came into force covering consumer contracts, distance selling and contracts made in consumers homes or workplaces

LEGISLATION which changes consumers’ right to cancel contracts or orders and provides further protection from unsolicited selling will have major implications for a wide range of businesses – and ignorance of the changes could lead to significant financial losses or even criminal charges.

In June this year, new consumer legislation (The Consumer Contracts [Information, Cancellation and Additional Charges] Regulations 2013) came into force as a direct replacement for the previous rules covering consumer contracts, distance selling (such as online or telesales) and contracts made in consumers’ homes or workplaces (known as “off-premises contracts”). The main changes affect consumers’ rights to cancel and the information a business must issue to consumers.

The legislation specifically does not apply to certain types of contracts, for example, the sale of food, drink and other standard shopping products (which means bars, restaurants and most shops are unaffected), banking and financial services, the construction of new buildings, contracts for rental of a home, gambling and holidays. However, almost every other supply of goods and services is affected by the regulations.

The first consideration is whether the regulations apply to your business at all, and that is worth checking. If they do, you will need to think about the practicalities of complying with the regulations, and that will depend on your circumstances. You should take legal advice if you are in any doubt.

“Off-premises contract” means a contract between a trader and a consumer which is any of these: a) a contract concluded in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader; b) a contract for which an offer was made by the consumer in the simultaneous physical presence of the trader and the consumer, in a place which is not the business premises of the trader; c) a contract concluded on the business premises of the trader or through any means of distance communication immediately after the consumer was personally and individually addressed in a place which is not the business premises of the trader in the simultaneous physical presence of the trader and the consumer; d) a contract concluded during an excursion organised by the trader with the aim or effect of promoting and selling goods or services to the consumer.

The most significant change for SMEs is to the consumer’s right to cancel. If all your business is done from your office or by telephone or e-mail, there is unlikely to be any right to cancel. In any other circumstances, the consumer may have a 14-day right to cancel and a notice informing him or her about that right must be supplied. You should try to get the consumer to acknowledge in writing that he has received the cancellation notice and other information.

If the required information about the right to cancel is not provided at the right time, the cancellation period may last for a full year after the information is eventually provided. In some circumstances, failure to supply information on the right to cancel is a criminal offence.

If a consumer has an ongoing right to cancel and properly exercises it, you will not be able to charge him for work you have done up to the point when he cancels, unless he has specifically agreed to pay charges incurred during that time. It is advisable to obtain this agreement at the outset of the contract.

The alternative is not to do any work until the cancellation notice has expired or to accept that you may not be paid for any work done in that time, which may not be very practical or desirable.

The changes also include the requirement to set out in detail information that must be supplied to consumers – from your identity and contact details to complaint handling policy.

In addition to the information about the right to cancel there is a requirement to supply further information for contracts agreed outside your normal business premises.

It is important to check how the regulations apply to your particular situation. This will ensure you provide the appropriate information and clarify cancellation terms with your customers to avoid any contractual disputes and to reach agreement regarding payment for work carried out during a cancellation period.

These new regulations are a potential minefield and we strongly advise businesses to seek legal advice to obtain clarification.

• Paul Harper is a partner with Lindsays www.lindsays.co.uk