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In running a business, you will engage in many contractual agreements. These contracts play a vital role in safeguarding and sustaining your business relationships. Suppose you have a straightforward offer with minimal negotiation required. In that case, drafting a standard form contract is advantageous, as it is an efficient way to present your proposal to the other party. This article will cover how to draft a standard form contract, highlighting crucial elements to include to prevent disputes under contract law.
What is a Standard Form Contract?
A standard form contract usually involves one party forming a contract where the party on the receiving end has little to no negotiation room, much like a “take it or leave it” arrangement. There is no specific definition for a standard form contract under New Zealand law, but it tends to take the form of a consumer contract or a specified trade contract. An agreement generally fits this classification if the contract’s annual value threshold is below $250,000.
To determine whether a contract qualifies as a standard form contract, the court will take into account the following factors:
- whether the party in charge of preparing the contract holds all or most of the bargaining power in the transaction;
- whether its preparation came before any discussions regarding the transaction between the parties;
- if the other parties could only accept or reject the contract terms as presented;
- the extent to which the parties could negotiate the contract terms; and
- how well the contract terms consider the specific characteristics of the relevant parties.
While the names of standard form contracts may differ, they have similar rules implemented in the drafting process. This type of contract is advantageous when there are multiple uses for the contract without needing to personalise it for each individual.
Examples of standard form contracts:
- Sales Terms and Conditions for goods;
- Business Terms and Conditions for services;
- Privacy policies and company policies.
Considerations for Drafting a Standard Form Contract
While standard-form contracts can be helpful in certain situations, they can pose issues if the contract terms are unfair or disadvantageous to the receiving party. Therefore, when drafting such contracts, you need to consider the following factors to mitigate the risk of unfairness within the contract.
To protect your business, ensure supplier contracts meet your business’ needs. Our free Commercial Contracts Checklist will help.
Key considerations include:
- using plain, easily understandable language;
- using clear wording that is not ambiguous or uncertain to reduce confusion and conflict;
- transparency to allow for easy accessibility;
- no unfair terms;
- no use of unfair pressure or tactics that would amount to unconscionable conduct; and
- providing sufficient reasonable notice of terms to the other parties of the contract, enabling them time to read and understand the terms before agreeing to the contract.
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Legal Protection Against Unfair Terms
When drafting your standard form contract, it is essential to be aware of the specific laws in place that protect parties from standard form contracts containing unfair terms.
The term will likely be unfair if:
- it would cause a substantial imbalance in the rights and obligations of the parties involved in the contract;
- the term is not reasonably necessary to safeguard the legitimate interests of the party that the term puts in advantage; and
- enforcing, applying, or relying on the term would lead to detriment to a party, whether financially or in other forms;
It is also important to note that transparency and the entirety of the contract are relevant to this assessment.
Only the Commerce Commission can bring an action to declare an unfair term in a standard form consumer contract under New Zealand law, but you have the right to make a complaint to the Commission. Once a term is declared unfair, that term cannot be relied on and is, therefore, unenforceable.
A standard form contract is a pre-written contract intended for repetitive transactions of a specific nature. New Zealand law consists of regulations that prevent unfair contract terms, safeguarding consumers from potential disadvantages within these agreements. Careful examination of contract terms while drafting is crucial to eliminate potentially unfair clauses and prevent the law from voiding any terms in your standard contracts. Fair terms enhance your company’s reputation, save time, protect involved parties, and mitigate disputes. Additionally, providing sufficient notice of terms and using plain language for easy comprehension enables the formation of a successfully binding standard form contract.
If you need assistance drafting a standard form contract, LegalVision’s experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
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