Common contractual terms explained by legal expert at The University of Law.
More than two thirds of people (68%) either don’t read or don’t understand contracts they sign for subscriptions or utilities, according to new research by The University of Law (ULaw).
Shockingly, more than half (55%) of the people questioned admitted they read their contracts to an extent but don’t always understand what they’re agreeing to. More than one in ten (13%) said they "hardly” or “never” read their contracts at all.
The findings become more alarming when considering rolling contracts and subscriptions. When asked how often they check updated T&Cs, 82% of respondents said they don’t always do so. Of these, more than one in three (36%) said they "hardly” or “never” check for updated terms in contracts that automatically renew.
Aruna Verma, Associate Professor at ULaw commented: “Contracts can often be long and complex documents, which can easily become laborious or confusing to read in-depth. However, it’s so important to fully understand what you’re entering into before signing on the dotted line, especially in the current economic climate.
“If anything were to go awry or you wanted to challenge something implemented by the supplier, a price increase for example, you’ll find it very difficult to do so if you have agreed to it in your contract’s T&Cs.
“Not only this, but if you were to find yourself in breach of your contract terms this could have serious consequences, such as fines or even legal action. If you don’t know what you’re contract terms are then you are putting yourself at risk unnecessarily.”
To help, legal experts at The University of Law have broken down five common contract terms and clauses to be aware of:
1. Entire agreement
This is a commonly used clause in contracts to make clear that the written document is an agreement between both parties. What this means is any claims made outside of that contract – for example on a phone call or in an email – won't be considered part of the legally binding contract.
2. Implied and Express Terms
Implied terms relate to any terms of contract that may not be provided in writing or verbally, but are implied by law, practice or custom.
Express terms on the other hand describe terms that are provided verbally or in writing, either before or at the time of the contract being signed. These terms make responsibilities clear for both sides of the contract and don’t rely on implied meaning.
Those that are implied by practice or custom are almost always over-ruled by express terms, whereas some that are implied by law cannot be over-ridden at all.
3. Pro Rata
Like many legal terms, Pro Rata is a Latin phrase, which means “for the rate”. This will often crop up when setting up a payment and means you will pay an amount for the fraction of the period according to its share of the whole cost.
For example, if you set up a monthly payment that is billed on the first of the month, and you join halfway through the month, payment will be Pro Rata so that you only pay for half of that month. This is often dependent on other clauses in your contract relating to payment terms, so be sure to fully read and understand everything.
4. Deemed energy contract
Dealing specifically with energy contracts, this is when your existing contract comes to an end, but your supplier continues to supply you. This happens when no renewal has been set up, or nothing has been arranged with another supplier. Deemed energy contracts are a supplier’s most basic offering and are much more expensive, so be sure to make note of what happens with your contract when it’s time for renewal.
5. Force majeure
This clause typically defines any extenuating circumstances that release all parties from any liability. The clause itself will define the hazards, dangers or “Acts of God” that will have this effect. Typically, these will be major events that are beyond the control of either party – something we saw a lot of in 2020 as the Covid pandemic began.
Aruna continues: “Legal professionals study for many years to get a handle on complex contractual terms, so don’t be disheartened if you find yourself confused when faced with a new contract. At the same time, don’t allow that confusion to tempt you into skim reading, or worse, not reading your contracts at all.
“So many are caught out by terms and conditions they had no idea existed. It is rare that a supplier will add anything to really trip you up, but you can very easily end up bound to unwanted subscriptions for longer than you’d like, or accidentally agreeing to unwanted price increases.”