Covid-19 – Are your T&Cs and business contracts fit for purpose?

All businesses in New Zealand have been impacted to some extent by covid-19. For some businesses covid-19 has encouraged them to go digital. For other businesses, covid-19 has required them to redefine their business model, products and services or ‘pivot’. For all businesses covid-19 has meant implementing social distancing practices.

As we change the way we do business it is important that our terms of trade and contracts remain fit for purpose. Here are a few things you can check yourself to see if your terms of trade and business contracts remain fit for purpose in this new covid-19 environment:

• Are they appropriate for all new products and services you are offering?
• Will a lockdown cause you to breach your performance obligations? 
• Are you obliged to keep paying fees for services you are not receiving due to a lockdown?
• If you encounter supply chain issues does your contract have a mechanism to substitute products?
• Does your contract have a mechanism to take into account the potential for cost fluctuations?
• Do your timeframes and notice periods take into account periods where business cannot be conducted due to a lockdowns? 
• Does your contract have a force majeure clause?
• Can you terminate your contract if you have reasonable grounds to believe a customer may have become insolvent?
• In the event you breach your contract or cannot perform your obligations is your liability limited?
• Does your contract acknowledge and allow you to enforce your social distancing requirements?

As the covid-19 continues we are likely to  see debtor days increase and more customers default or refuse to pay.  There are a few things you can do now to increase your chances of a successful recovery of customer debts:

• Have a robust customer sign up process and effective terms of trade; 
• Incentivize timely repayment with discounts or penalize late payers with default interest; 
• Consider requiring personal guarantees from customers which are companies;
• Consider securing your interests pending payment with a registered financing statement.

If you are selling products digitally for the first time check whether your terms of trade cover the following:

• Do they have delivery terms and return policies?
• Do they address issues around product availability?
• Do they have clauses addressing user accounts, login and internet security?
• Do they address issues around international customers (including specifying applicable currency, laws and forum for disputes)?
• Do they deal with parental approval requirements?
• Do you have a privacy policy that deals with the collection of customer information?

If you do not have terms of trade or your terms of trade or business contracts are no longer fit for purpose talk to your local lawyer.

Disclaimer: The information contained in this publication is of a general nature and is not intended as legal advice. It is important that you seek legal advice that is specific to your circumstances.