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What Are Market Standard Warranties in Commercial Contracts?

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Commercial contracts may become quite complex in many industries, making equitable value for payment a primary concern. Warranties are a crucial component of a commercial contract, providing assurance and confidence for you if things go wrong and acting as a safety net. Whether it involves the quality of goods or the involved parties’ capabilities, warranties are pivotal instruments that can improve your chances of making a warranty claim if things go wrong. Thus, you should carefully read the warranty clause in any commercial agreement. This article explores market standard warranties that you should include in any commercial contract. 

What is a Warranty?

A warranty is a guarantee or promise made by one party to another regarding products, services or assets involved in a selling and buying transaction. Warranties are typically found in commercial contracts and grant the receiving party the right to pursue legal action for damages if a breach results in loss or liability guaranteed by the warranty. They serve as a risk management tool, balancing responsibilities in commercial transactions. 

However, you should customise them to suit each commercial deal with a target company rather than being an all-encompassing solution. While some warranties come through voluntary agreement, others are automatically implied by law, especially for consumer protection.

Consumer Guarantees Act  

Under New Zealand law, the Consumer Guarantees Act (CGA) covers the protections regarding warranties, but this is not automatically applicable to contracts with suppliers. For goods you buy in New Zealand, you usually only need an extended or manufacturer’s warranty if they offer more protection than you are already entitled to by law.

You should keep in mind that your rights under: 

  • the Consumer Guarantees Act (CGA) apply whether you have an extra warranty for an item or not;  and 
  • under any other warranty are in addition to your CGA rights.

The criteria for a warranty in a commercial contract are as follows:

  • goods and services must match their descriptions, which include their intended purpose; 
  • the goods must be fit for the intended purpose and of acceptable quality; and 
  • account for exclusions for certain types of transactions. 
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Manufacturing vs Extended Warranties 

There are typically two types of warranties. Manufacturers’ warranties are included in the purchase price and come with the product.  Alternatively, extended warranties are optional and available for an additional fee, providing extra coverage beyond the standard manufacturer’s warranty.

The below table provides further details of the differences between the two types of warranty.

Manufacturer Warranty Extended Warranty 
Guarantees repair or replacement of faulty products for a designated period. 

Manufacturers do not have to provide this in written form, but if they do, they must comply with those terms in addition to their obligations under the Consumer Guarantees Act (CGA). 
Type of agreement offering additional guarantees for purchased products or services that require further payment. Personal and household usage may not justify using this type of warranty. Examine the extended warranty coverage to determine if it offers extra protections beyond the CGA. 

Extra protection can include cover for accidental damage, but the CGA may not apply if you have insurance. Check for any clauses outlined in your commercial contract that will cause your warranty to expire once you make a claim. 

The extended warranty must be written and contain its total price, terms and conditions, rights and remedies under the CGA, a comparison of the protections offered by your warranty and the CGA, the warrantor’s details and your rights to cancel. 

It is important to note that CGA obligations apply even after the expired warranty. 

Examples

For example, say you purchase laptops for your business with a one-year manufacturer’s warranty. Seven months later, all laptops experienced hard drive crashes due to a manufacturing defect. Under the manufacturer’s warranty, repairing or replacing the faulty laptops would likely be covered at no additional cost. 

Another example may be that you purchased an extended warranty that extends coverage for those laptops for an additional two years. Suppose a different hardware component fails due to regular usage after the first year. In that case, the extended warranty may cover the repair or replacement costs during the extended period for which you have purchased the warranty. However, this coverage is subject to the terms and conditions of the extended warranty plan. 

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Minimum Warranties to Ask Your Suppliers 

You should prioritise market standard warranties from suppliers as a baseline when seeking warranties. This includes placing them as separate clauses within your commercial agreements. 

There is a general expectation that suppliers will warrant that:

  • goods and services align with agreed specifications and reasonable requirements; 
  • they are executed with skill and care and by qualified individuals; 
  • adhere to New Zealand laws;
  • the warranty obligations are fulfilled within the timeframes agreed by both parties; and 
  • the warranty is free from encumbrances such as security interests. 

You should also ensure the supplier commits to replacing deficient goods or services. For further protection,  you could also include a clause in your agreement for a refund if they fail to do so. 

Furthermore, you may request supplementary warranties to support your contractual position during contract negotiation or formation. These include seeking a warranty to confirm the supplier’s necessary licenses or corresponding authorisation, capacity, and solvency. For example, you may seek a building licence for a service. 

Key Takeaways 

In summary, ensuring market standard warranties within your contracts will protect your position while allowing avenues for recourse. You should carefully review the commercial contract warranties in adherence to New Zealand’s Consumer Guarantees Act. Before signing, it is recommended that all parties understand and review the warranties involved in the agreement, which may mean seeking legal advice. 

If you need assistance drafting your warranties clause or reviewing your seller’s warranties, our 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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