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Franchises should be wary of new Consumer Contracts Regulations

on Thursday, 04 June 2015. Posted in Legal

Franchisees risk not getting paid if they fail to comply with the new Consumer Contracts Regulations, warns Kate Legg, associate at Higgs & Sons

Franchises should be wary of new Consumer Contracts Regulations

How would you feel if you did some work for a customer but then discovered that you couldn’t get paid because you hadn’t followed correct procedures? Many businesses are unaware that they are risking exactly this scenario by not complying with the new Consumer Contracts Regulations, which were brought in last summer. 

The Consumer Contracts Regulations were brought in following a European directive, with the intention of ensuring that consumers benefit from minimum levels of protection across Europe. Different rules apply depending on where and how a contract is formed. Specifically, the rules are more onerous if a contract is formed at the consumer’s home or online but less stringent if the contract is entered into at the trader’s premises.

In addition, the rules vary according to whether the business is supplying goods, such as kitchen units, stationery or car parts; services like garden maintenance or repair work; or digital products including ebooks or video downloads.

Admittedly, the new rules are complicated and implementing them may hamper the smooth closing of a sale but failure to comply could prove costly. \At best, a business that does not follow the correct procedures may be unable to get paid for the work it has done; at worst, it risks a fine, bad publicity and being forced to contact all of its customers explaining that they have not complied and giving customers a right to cancel, even if the contract was concluded many months before.

What do you have to do?

Broadly, the regulations require traders to give consumers certain, minimum information before the contract is concluded. This includes confirming the identity of the trader, details of what the customer is buying and information on price and delivery. 

In addition, they state that goods must normally be delivered within 30 days and they also outlaw the use of premium rate telephone lines for contacting the business about an existing contract. 

Businesses that trade online, by mail order or at the customer’s premises will almost certainly need to review and update their terms and conditions to ensure that they comply with the new rules.

Cooling off

One of the most onerous parts of the regulations relate to the consumer’s rights to cancel. These apply to most contracts that are concluded either at a distance – by mail order, telephone or online – or ‘off-premises’, whether that’s at the customer’s home, work or anywhere other than the trader’s normal premises. 

In these cases, the customer usually has a 14-day cooling off period when they can cancel the contract for a full refund. However, if the trader has not followed the correct procedures or told the customer that they have a right to cancel, then the cancellation period can be extended by up to a year.

Cancellation of service contracts

For businesses that supply services, the cooling off period can cause particular difficulties. Often, customers will want the supplier to start work straight away but if the supplier commences work before the 14-day cooling off period has expired, then the customer could cancel the contract and not pay for the work done.

The way around this is to ensure that the customer gives an express, written request for the trader to start work immediately and waiving their rights to cancel. Traders should note that this request will only be effective if it is given in writing – a verbal request will not be sufficient. If a customer has given a written request to start work immediately, they still have a right to cancel during the cooling off period but will have to pay for the work done before the point of cancellation.

Cancellation of contracts for the sale of goods 

The cancellation period for goods begins on the date the customer receives the goods. If goods are delivered in separate instalments, the clock won’t start running until the final instalment has been delivered and received.

If the customer cancels, they are entitled to return the goods to the supplier for a full refund. If the goods have been used or are damaged, then the trader can reduce the amount of the refund to reflect the reduction in the value of the goods – effectively refunding the ‘second hand’ value. 

The general test here is that the customer is allowed to handle the goods to the extent that would be permitted in a store or showroom but the trader can reduce the refund if the customer has gone any further than this. For example, if a jigsaw is delivered in a cellophane wrapped box, wrapped in a further box, then the customer would be allowed to open the outer packaging but wouldn’t be able to rip the cellophane and open the inner box.

Bespoke or not bespoke – that is the question

There is often confusion over what constitutes ‘bespoke’ goods. If a product has been personalised for an individual customer, then there is no right to cancel. However, this only applies if the goods are truly bespoke to that specific customer – an item that is made to order after a customer has made a selection from various options in the supplier’s brochure will not be sufficient. 

For example, if a customer chooses kitchen doors in a particular style and finish from the supplier’s standard range and the doors are then made to order, the customer will still have a right to cancel. However if the goods are made to fit a specific room in a non-standard size, then the goods are classed as bespoke and the customer would be unable to cancel.

Getting it right

Although the rules may seem confusing and, at times, cumbersome to implement, a well drafted set of terms and conditions will go a long way to helping businesses comply with the new rules. Once standard documents – and the systems to use them properly – are in place, businesses shouldn’t lose sleep over their consumer contracts.

However, for those businesses that ignore the rules, non-compliance could prove a costly mistake. 

Kate Legg is an associate at Higgs & Sons, the law firm.

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